Jobs Number Shows Trade War Hitting Home?

The headline numbers are these: The latest jobs report shows that 75,000 jobs were created in the United States last month. A slew of economists, as noted by Bloomberg, expected a gain of 175,000 jobs.

Quite a shortfall on the face of it.

Drilling down, the unemployment rate was 3.6 percent, holding steady from rates seen previously. But it is that headline number that is in focus, sending stocks soaring, at least as of this writing, up about 80 basis points. Perhaps that enthusiasm may feel counterintuitive, as the jobs number also points to a softening in hiring, if we’re to extrapolate a month’s data point. And a softness in hiring means companies are reluctant to add to their cost structures (through employee rosters) because, hypothetically, they worry about their respective top lines.

And yet, the Federal Reserve has given investors signs that it might cut rates in a bid to keep the economy in growth mode, even as retail sales have been lumpy (retailers, according to the jobs data so far this year, have shed 50,000 positions) and declining of late, and as factory orders (from businesses) have also waned. Signs of deceleration certainly provide a tailwind to that argument. Lower rates, goes the thinking, means money gets put to work in the economy and businesses investing in growth see higher profits, thus Wall Street is cheered. The deceleration also has been proven by the fact that the April and March jobs tallies were revised – downward this time, by a net 75,000 jobs.

The business caution seems to stem, at least in part, from the ongoing trade war with China, and where a new front may be opening with a trade war waged with Mexico. Tariffs, after all, act as a tax on businesses that import materials to make finished products. Indeed, there were some pockets of strength in the latest reading – where, for instance, the healthcare sector added 24,000 positions, and the professional and business services subset of firms added 33,000 positions. Those additions are the bulk of jobs added in the month.

Rate cut in the offing? Perhaps – and maybe as early as this month at the next central bank meeting. Then again, not all that long ago, the U.S. economy was growing at more than 3 percent. The Atlanta Fed has dialed that back markedly, with expectations of GDP growth for the second quarter at 1.5 percent. With the tightrope walk between rate cuts and job growth, the saber-rattling (and perhaps nerve-wracking, at least for business executives) of trade wars is now showing up in the data.