The May job market report disappointed, but it was hardly a disaster. Nonfarm payrolls were reported to have risen by 75,000 in the initial estimate, following a 224,000 gain in April. Still, downward revisions to the two previous months suggests that the underlying trend in job growth is slowing. Trade policy appears to have something to do with that. Despite the “dismal” job market data, stock market participants were encouraged by increased prospects that the Fed will lower short-term interest rates this summer. Fed action is likely to be conditional on a further escalation of trade tensions, but there’s a good argument to be made for an “insurance” move.
There is a lot of noise in estimates of the monthly change in nonfarm payrolls (reported accurate to ±110,000). Large swings are common. Seasonal adjustment can be tricky. It looks like some of May’s strength was pulled into April. Private-sector payrolls averaged a 149,000 gain in the last three months, a +158,000 average for the first five months of 2019 (vs. +215,000 in 2018 and +172,000 in 2017).
Average hourly earnings rose 0.2% in May (+3.1% y/y), although somewhat stronger for production workers (+0.3% m/m, +3.4% y/y). Still, with the unemployment rate remaining at 3.6% (2.9% for those aged 25-54), it’s surprising that wage growth hasn’t been stronger.
Working part-time do so voluntarily. These could be students or someone taking care of a child or other family members. The percentage working part-time for economic reasons has been trending lower. However, the Fed’s Beige Book noted that “solid hiring demand was noted for retail, business services, technical, manufacturing, and construction jobs and by staffing agencies in general.” However, “stronger employment growth continued to be constrained by tight labor markets, with districts citing shortages of both high- and low-skill workers.” Competition for workers resulted in some wage pressures across a wide range of occupations, according to the Beige Book, “and induced improvements in benefits to attract more workers and to improve retention of existing employees.”
It’s difficult to determine how much of the recent slowing in job growth is due to trade tariffs. Manufacturing payrolls have been little changed over the last four months, consistent with the softening seen in new orders and industrial production. There is no such thing as “U.S. manufacturing.” Our firms get parts and supplies from around the world. Tariffs, and even the threat of tariffs, are disruptive to supply chains.