Investors get slammed with bleak jobs report, and might be a sign of things to come.
On the heels of the limp report that hit the newswires this morning, JPMorgan Chase banking economist Jim Glassman had this to say, “This is a new era for the economy, you cannot expect to get 200,000 new jobs a month forever in a fully-employed economy and when the working age population is growing by 65,000.”
It would be a hard pill to swallow for investors, as well as the market to get used to the idea of an economic slowdown. This new reality is made manifest by the trade wars that hurt US businesses, an aging economy and tepid population growth.
US Economy Sputters
Job growth slowed more than expected in May, while unemployment held steady at a 50-year low. The jobs gain was about 75,000, falling far short of the market forecast of 175,000. However, the loss of jobs in key sectors of the economy paint a far more drastic picture.
The six sectors that posted the largest jobs losses were non-durable goods, retail trade, transportation and warehousing, information, government, and repair and maintenance services.
The biggest loser was government, where 15,000 jobs were cut. The total loss of 19,000 jobs at the state and local level was partially offset by the 4,000 gain in hiring. This represents a swing of 34,000 lost jobs after 19,000 jobs were added in April. Now most of that progress has been wiped clean off the table.
The retail industry continues to bleed jobs, , posting a loss of 7,600 jobs in May, which is slightly better than March and April when the industry lost 14,800 and 13,600 jobs respectively. This brings the total jobs lost for the retail industry to 160,000 jobs since January 2017.
Taking in the big picture, a big concern was the steep cuts to prior job predictions. April’s predictions were cut to 224,000 from 263,000, and March’s numbers were revised to 153,000 from 189,000 previously. The average job gains came up to 151,000 over the past 3 months, which comes up short against the blistering 200,000 plus jobs created in the same time period in 2018.
Trade Wars to Blame for Slump
The report comes in the wake of escalating trade wars with Mexico and China. This has spooked markets and undermined the growth outlook. Some Wall Street economists say that this bleak jobs report is a sign that the end of the business cycle is approaching.
The US economy is close to approaching 10 years of sustained economic growth, but the six sectors that are declining only strengthen the argument that the economy is showing early signs of moving back into a recession state.
Strategists at Allianz flat out said in an email note that the US economy is near the end of its expansionary business cycle. The Dow Jones Industrial Average hopes to challenge this outlook, as it surged more than 270 points in early trading this morning in hopes that the trepidation in the labor market would encourage the Federal Reserve to cut interest rates.
