The U.S. economy added 75,000 jobs in May, a significant pullback from 224,000 jobs added in April that is likely to heighten fears the trade war is taking a greater toll. The unemployment rate remained at a five-decade low of 3.6 percent.
Manufacturing and construction saw anemic job growth in May with fewer than 5,000 jobs added in each sector, one of the clearest signs that Trump’s tariffs are having a negative impact on blue-collar sectors the president has been trying to boost. . . .
Business leaders are growing increasingly alarmed at Trump’s seemingly unending appetite for tariffs, making it hard to ignore that the trade war is also playing a role in worsening the economic outlook.
Trump says he likes to run economic policy by “gut.” He might instead consider listening to business leaders (if not economists) who are making economic decisions now that will have ramifications months from now, and will potentially dash his reelection hopes. (“Economists are warning that the ramification for jobs could be severe with potentially hundreds of thousands of jobs at risk, especially in the auto and manufacturing sectors that have supply chains that often cross the border,” reports The Post.)
Even more alarming, the Bureau of Labor Statistics reports, “The change in total nonfarm payroll employment for March was revised down from +189,000 to +153,000, and the change for April was revised down from +263,000 to +224,000. With these revisions, employment gains in March and April combined were 75,000 less than previously reported.” Looking at the bigger picture, the economy is worse this year for workers than last year. (“Monthly job gains have averaged 164,000 in 2019, compared with an average gain of 223,000 per month in 2018.”)
Former car czar Steven Rattner explains that the inversion of the yield curve (the difference between interest rates on short- and longer-term debt) happens when investors get nervous about the future. That seems to be happening now: “Normally (and logically), the government pays more to borrow for longer periods of time, just like a homeowner selecting a mortgage,” he writes. “But when recessionary worries emerge, this relationship can reverse. It did so seven times over the past 50 years and in every case, a recession soon followed.”
Accordingly, we now see the government’s “three month debt currently yields 2.3 percent while is [sic] 10 year debt fetches slightly less, 2.1 percent.” He adds that when “investors get scared, they rush into our debt, depressing yields. An added factor in this cycle is the fear of deflation; if you’re worried that prices might go down, locking in even a 2.1 percent rate for 10 years can seem attractive.”
Rattner and other economists acknowledge that a slowdown in the economy after 10 years of growth is not unexpected. This also coincides with the dissipation of the fiscal boost from the tax cut, which, contrary to Trump administration claims, did not permanently or dramatically change investment and wages.
Trump, aside from overpromising on the tax cuts, has contributed mightily to the weakening economy. “Certainly a major factor in the current economic uncertainty is Mr. Trump’s trade war,” Rattner says. He notes that “the stock market effectively peaked a month ago when the president announced his expanded tariffs on imports from China. From its May 3 peak, the Standard & Poor’s index fell by 3.5 percent.”
Trump is hoping the Federal Reserve (which he delights in bashing) will bail him out. Indeed, a cut in interest rates is much more likely later this month. Whether that will counteract all the other factors noted above (plus a weakening of European economies) remains to be seen.
Few economists think a recession is imminent. However, as Jared Bernstein notes, “Headwinds have accelerated and the possibility of weakening demand is real.” He adds, “Obviously, the trade war and its potential escalation — opening the Mexican front in the war — are in the mix, as is the related weakness of U.S. business investment numbers. Germany, Europe’s alleged powerhouse economy, just posted big drops in industrial production and exports. As of this morning, second quarter U.S. GDP is tracking well south of 2 percent.” That’s a far cry from Trump’s promise of an annualized growth rate of 3 percent.
Politically, a downturn in the economy would be disastrous for Trump, who is hanging on in polls largely because of the economy. Take that away, and he’ll have to fall back on his other accomplishments. Oh, right, there aren’t any. Well, he’ll have to rely on his personal characteristics — except even some of his supporters think he is dishonest, erratic and ignorant.
Trump’s fate may very well depend more on the course of the economy than on anything Democrats will find in their investigations. That it should result from his own ignorant, impetuous trade decisions suggests political karma is real.