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How shakier U.S. jobs numbers could become a self-fulfilling prophecy

May's jobs report showed more signs of slowing economic growth in the U.S. The Labor Department reported a net gain of 75,000 jobs -- just a third of the total for the previous month. That change is set against a backdrop of trade wars and other signals, like manufacturing data and anxiety in the financial markets. Judy Woodruff gets analysis from David Wessel of the Brookings Institution.

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  • Judy Woodruff:

    It was just last month that we were discussing a U.S. jobs report that was far stronger than expected. But, since that time, there have been a number of signals suggesting economic growth has started slowing down and will slow even further in the second half of the year, including manufacturing data and anxiety in the financial markets.

    The latest jobs report out today is adding to those concerns. It shows that the U.S. economy has added an average of 164,000 jobs a month this year. That's down from an average gain of 223,000 for all of 2018.

    This is set against a backdrop of trade wars and possibly more tariffs next week.

    David Wessel of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution is back with us. He's also a contributing correspondent for The Wall Street Journal.

    David Wessel, it's great to have you back with us.

  • David Wessel:

    Good to be with you, Judy.

  • Judy Woodruff:

    So, last month, we were talking about 224,000 jobs had been created in April. Now we're looking at 75,000 in May. What happened?

  • David Wessel:

    Well, the numbers bounce around quite a bit from month to month, but, as you pointed out, on average, we're creating fewer jobs now than we did just a few months ago.

    The economy is slowing down. It's still strong, unemployment at a 50-year low. Manufacturing has been weak. I think if we could see 150,000 jobs a month, which is what we have averaged over the last three months, and a 50-year low in the unemployment rate at 6.3 percent, we would be very happy.

    The problem and the worry is, as you look over the horizon, things look like they're deteriorating, in part because of the fright that President Trump has created with these tariffs he's threatening to impose on Mexico and the ones he's already imposed on China.

  • Judy Woodruff:

    How much of a drag is that presenting? Because, yes, there are tariffs that have already been imposed on China. We don't even have the tariffs imposed yet on Mexico. Why is that a drag?

  • David Wessel:

    Well, I think that it's clearly concentrated pain on some people.

    If you're a farmer, and you have been hit by the Chinese retaliatory tariffs, or if you're a bicycle maker, and you're trying to import parts from China, you have felt the pain. But the overall U.S. economy has been strong enough so far to shake that off. I mean, after all, unemployment is still low. And most of the stuff we make and in the U.S., we consume in the U.S., and most of the stuff we consume in the U.S., we make here.

    But I think that the fear is that it's going to get worse from here. The tariffs that the president is threatening to impose on Mexico, the ones that are down the road on China are things that would really raise prices to consumers, and would have a direct impact on American households.

  • Judy Woodruff:

    But do I understand you to say that's part of what's going on, but there still are other signs of slowdown?

  • David Wessel:

    Yes, absolutely.

    I think the thing that's concerning now is that, if you start to see some wavering in the pace of hiring, if you start to see businesses being reluctant to make new investments, then that could become a self-fulfilling prophecy.

    And that's what the markets seem to be saying, particularly the bond market. They're looking over the horizon. They say businesses are going to be so shaken up that they're going to start pulling back.

  • Judy Woodruff:

    So, meanwhile, you have the Federal Reserve under Jerome Powell, the chairman, saying, well, we're looking at the economy. If we think things are going to get weak, we're going to be here. We're going to — suggesting we're going to cut interest rates.

  • David Wessel:

    Right.

  • Judy Woodruff:

    Does that look like seriously something that's going to happen now?

  • David Wessel:

    Well, the markets are pretty much assuming that Jay Powell and his colleagues at the Fed are going to cut interest rates.

    I think they're in quite a difficult position. On one hand, it must be tempting for Jay Powell to get up in front of a microphone and say, we did a good job. President Trump is screwing everything up. We're not going to bail him out.

    And I don't think he will, but that must be tempting.

    What seems to be the thinking of the Fed is, our job is to keep the economy going strong, no matter what the politicians throw at us. It might be tax cuts, it might be tax increases, it might be tariffs.

    And so I think that they are anticipating that Trump will cause a slowdown in the economy, and they're going to rescue us. But the thing that makes it very difficult — two things that make it difficult. One is, they don't want to look like they're caving to President Trump, and his frequent demands that they cut interest rates raise their hackles.

    And, secondly, I think they want to avoid being a position where they cut interest rates in anticipation of tariffs, then the president turns around and says, oh, never mind, I will shake hands with Xi Jinping in Japan when he meets him at the end of the month.

  • Judy Woodruff:

    So what does that say in terms of when a decision to cut interest rates might come?

  • David Wessel:

    Well, the Fed meets in a couple weeks here in Washington. I don't think they will cut interest rates.

    But the financial markets are betting that, when they meet again in July, they will cut rates. I think that's the soonest it would come.

  • Judy Woodruff:

    And we should point out, David Wessel, that today the president was tweeting, it looks like we may have a deal with Mexico.

    I mean, we just — it's just unclear.

  • David Wessel:

    Right. And it's certainly in his control. He created this dispute with the Mexicans.

    Things were on track to put through the new trade deal with Mexico and Canada. He kind of surprised everybody by this tariff threat with Mexico. So I think if the tariffs start to go in next week, I think people will think this might be more than a presidential tweet or presidential words. It will have real damage.

    China and Mexico are by far our biggest trading partners. There are lots of companies that depend on supply chains that run through those companies. There's a lots of things that we buy — and it's not just avocados — that come from Mexico.

  • Judy Woodruff:

    People are going to be watching this very closely over the weekend.

  • David Wessel:

    They will.

  • Judy Woodruff:

    David Wessel, we thank you.

  • David Wessel:

    You're welcome.

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