U.S. Jobs: Slipping Job Growth Likely Caused by Tariffs

OK, then: Here we go a-slidin' again. Although the unemployment rate for May held steady at a record-low 3.6 percent, hiring numbers once again declined precipitously. U.S. Bureau of Labor statistics show 75,000 new jobs added for May. That number is equal to about half of the trailing three-month average of 151,000 jobs.

It's even lower than economists' consensus forecast for May jobs of around 185,000 — by a whopping 60 percent. Yikes! With such discrepancies at work, the natural question is, "What's going on here?"

Tariffs Tax Employers Grievously

Given the ongoing trade war with China, and recent escalation of tariffs from levels of around 10 percent to levels of around 25 percent ... well, that's certainly part of the picture.

But with tremendous irony and terrible impact, President Trump announced that a 5 percent tariff would be levied on Mexican imports starting June 10, and ratcheted up by an additional 5 percent per month through October until they reach 25 percent, should the Mexican government fail to meet his as-yet-completely-unspecified demands to reduce or even halt migration from the south (primarily from Honduras, El Salvador, and Nicaragua).

The irony of this levy comes from Mexico just having surpassed China as the U.S.'s top source of imported goods as of May 31 (see this Washington Post story). Bluntly put, businesses across all industries and market sectors are dumbstruck at the cost impacts and potential losses that tariffs could impose.

Thus, it seems for now that they're retrenching on their expansion, growth, and hiring plans to limit their exposure. Naturally, that means hiring drops like a rock, too.

Revisionist Tallies Also Lower Expectations

Just to make things more interesting the usual revisions to the two previous month's numbers both contributed to a distinctly downward push on job numbers overall. The original numbers for March were revised downward by 36,000, from 189,000 to 153,000. April also took a definite dip as the original 263,000 was revised downward to 224,000, a decrement of 39,000.

Thus, just as the present starts to look a little tarnished, we've also lost some of the luster of the numbers for the two preceding months. Sigh.

Where Did (Diminished) Growth Occur?

So far, the monthly jobs gain average for 2019 has been 164,000, as compared to an average of 223,000 new jobs monthly in 2018. That's a drop of around 27 percent, which spells neither "happiness" nor "rosy growth ahead" to anyone.

Source: U.S. BLS Current Employment Statistics Highlights May 2019 (PDF format)

This may account for the Fed's recent decision to back off on further interest rate hikes, and there are even hints that interest rates could actually themselves start dipping again in the foreseeable future. The overall trend at the moment is not terribly encouraging, though.

Even May's severely limited growth, of course, helped a few employment sectors to eke out some gains. Let's look at who benefited:

Professional and business services added 33,000 jobs, as compared to average monthly gains of 41,500 over the trailing 12-month period.

Health care added 16,000 jobs in May. This is an even more serious decline from its trailing 12-month average of 32,500.

Construction inched ahead, if only barely, adding 4,000 new jobs in May. Compare this to the trailing 12-month average of nearly 18,000.

Manufacturing added 3,000 jobs in May, against a 12-month average of over 20,000.

Regarding that last figure, NPR reports that "an index of manufacturing activity released Monday fell to its lowest level in 2.5 years."

Pretty much all other major sectors were unchanged for May versus April, including mining, wholesale and retail trades, transportation and warehousing, information (where the IT jobs are, financial activities, leisure and hospitality, and government.

Seems to me, the jobs market in particular and, by extension, the general U.S. economy has retreated into a cautious "hunker down and wait it out" mode. It's hard to say — in view of the stock market bounces that occur each time imposition of tariffs is understood to be less likely or less stringent — whether this is just a momentary dip, or the new shape of things to come.

What I can say with certainty is that nobody likes the current situation very much — employers, employees, and investors alike.