Strong Jobs Report Eases Fears of Damage From Trade War – The New York Times

Strong Jobs Report Eases Fears of Damage From Trade War – The New York Times

President Trump declares that the economy is doing “unbelievably well” after payrolls grow by 224,000 in June.


CreditCreditJim Young/Agence France-Presse — Getty Images

Ben Casselman

A decade after the Great Recession released its grip on the American economy, the job market shows no sign of falling into another slump.

Weak hiring in May had given rise to fears that the long-running expansion was foundering in the face of trade tensions and cooling growth overseas. But job growth rebounded sharply in June, the Labor Department reported Friday. Employers added 224,000 jobs, a larger figure than expected. And manufacturers, which are bearing the brunt of President Trump’s trade war, added jobs at the fastest pace since January.

That resilience is good news for workers, who are benefiting from what is now, at least unofficially, the longest economic expansion on record. And it is a boon to Mr. Trump, who is expected to make the economy’s strength a centerpiece of his re-election campaign.

“Our country’s doing unbelievably well economically,” he told reporters Friday. Yet even as Mr. Trump celebrated the robust hiring numbers, he called again for the Federal Reserve to cut interest rates — a step that would ordinarily suggest worries about the economy’s direction. Growth “would be like a rocket ship” if the Fed acted, he declared.

Fed policymakers are expected to take that course at their meeting this month, though the strength of the latest job figures makes it likely that the reduction will be modest. Stocks initially fell almost 1 percent Friday on the rate outlook, but by the end of the day the S&P 500 was down only 0.2 percent.

The job market has lost some momentum since last year, when tax cuts and increased government spending gave the economy a jolt. Employers have added an average of 171,000 jobs over the past three months, down from 223,000 per month last year. Wage growth, which picked up late last year, appears to have stalled again — average hourly earnings were up 3.1 percent in June from a year earlier, a pace that has barely budged in months. The unemployment rate rose slightly, although at 3.7 percent it remains near a multidecade low.

Over all, Friday’s figures indicated that the economy is gradually cooling, not headed for a deep freeze. Separate data from the Institute for Supply Management this week showed that both the manufacturing and services sectors grew in June by a variety of measures, though more slowly than in May. The housing market has shown signs of weakness, but that hasn’t yet discouraged consumers from spending money, perhaps because layoffs are near record lows.

“Everyone knew the pace was going to slow,” said Brett Ryan, an economist at Deutsche Bank. “The question is if it’s going to slow more sharply.”

The strength of the United States economy stands in stark contrast to weakness overseas. Data released Friday showed that German factory orders fell sharply in May, the latest sign of trouble in Europe’s largest economy. The European Central Bank is widely expected to take action to stimulate the economy when it meets this month. China’s manufacturing sector has likewise been struggling, in part because of tariffs imposed by the United States.

The conflicting signals being sent by the domestic and global economies are complicating the Fed’s decision on interest rates when its policymaking group meets on July 30 and 31.

Investors had been expecting a cut of as much as half a percentage point, but “that’s probably off the agenda,” said Ian Shepherdson, chief economist for Pantheon Macroeconomics.

Economists — and investors — still think a quarter-point cut is likely, however. Some Fed officials are concerned by the stubbornly low rate of inflation, which has fallen below the central bank’s 2 percent target. For them, June’s strong job growth will matter less than the weak growth in hourly earnings, which will do little to push up prices.

They are also worried about the trade war and its effect on global output. In a report to Congress on Friday, the Fed said it was seeing signs that uncertainty surrounding trade policy was leading companies to delay investment decisions, which could in turn slow economic growth.

At Taco Metals, a Miami-based manufacturer of equipment for the recreational marine industry, tariffs have meant higher costs for the raw materials and parts it imports from China and other countries. That has added to fears from boat builders and dealers about how long the good times can last in an industry that is highly sensitive to the broader economy.

“The tariffs just kind of forced people to think twice about is this going to continue,” said Bill Kushner, a vice president at the company. “There’s starting to be more hesitation on both the manufacturing side and the dealer side.”

As customers pull back, Mr. Kushner’s company, which employs about 150 workers in Florida and Tennessee, is doing the same. It is holding off on some equipment purchases and waiting to fill some positions.

“It’s just caused us to take a little step back and reassess some of the direction and make sure we’re not jumping the gun,” Mr. Kushner said. “It’s like, ‘Well, are we sure we’re going to need to do this, or should we try to outsource?’”

So far there is little evidence that those concerns are spreading beyond manufacturing to the broader economy. Hiring in the much larger services sector bounced back in June after unexpected weakness in May, and consumer confidence remains high. Tariffs were barely a topic of conversation at a big gathering of internet retailers in Chicago last week, said Jason Guggisberg, vice president for national accounts for Adecco, a staffing company.

“They’re very optimistic about a very great second half of this year,” he said. “They’re going to ride this economic wave as long as they can.”

June marked the 10th anniversary of the official end of the Great Recession. Unless a recession has already begun, something economists often don’t know for several months, the current expansion is the longest on record.

Perhaps inevitably, that milestone has prompted questions about when the good times will end. Economists say a recession will come eventually, but research has found that periods of economic growth do not simply peter out — some outside force has to cause them.

“There’s lots of talk about uncertainty, and maybe that’s going to lend itself to a weakening in hiring, but we haven’t actually seen it happen yet,” said Michelle Meyer, chief economist at Bank of America Merrill Lynch.

The streak has been more remarkable for its durability than for its strength. Hiring has been slower than in many past recoveries, and wage growth has been anemic through much of the decade. Only recently have the economic gains filtered down to black and Hispanic workers, those with less education, and others who face discrimination or other barriers to employment.

“A slowdown is worrisome because you do still have these groups and these workers who have not fully benefited by the recovery,” said Martha Gimbel, an economist at the job-search site Indeed. “For a lot of people, just not going into a recession may not be good enough.”

The recent period of very low unemployment has started to help a broader group of workers, as companies have had to search for new sources of talent. Mr. Guggisberg said his clients, which include warehouse and logistics companies, were dropping educational requirements, training workers who lack experience and easing up on drug testing.

Pool Scouts, a Virginia-based pool maintenance and repair company, is experiencing the challenge firsthand. Even after raising pay, the company’s franchisees have seen higher turnover this year for hourly workers, who typically earn $12 to $18 an hour. And when they need to replace people, hiring can be a struggle.

“We’re seeing much higher no-show rates” for job interviews, said Kevin Wilson, chief executive of Pool Scouts’ parent company, Buzz Franchise Brands. “We’re going to interview you, we set up a time for you to come in, and you just don’t show.”

For Mr. Wilson’s company, which also owns franchise businesses for swim lessons and home cleaning, the strong economy is creating a problem that may be less obvious: People have become reluctant to become franchisees, because they have steady jobs and don’t need to take the risk of striking out on their own.

“We’re having a lot of people go through the process and then say, ‘You know, I’ve got it pretty good at my job, I just got a raise,’” Mr. Wilson said. “There’s just not that incentive there anymore to make the jump, as opposed to the economy we had two, three, four years ago.”

Matt Phillips and Jeanna Smialek contributed reporting.

Ben Casselman writes about economics, with a particular focus on stories involving data. He previously reported for FiveThirtyEight and The Wall Street Journal. @bencasselman Facebook


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