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Joy Over Job Numbers Tempered by Trade War Concerns

June 1, 2018
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Guest blog by Dr. Tom Cunningham, Economist and MST Advisory Services, Senior Advisor- Economics

Dateline: June 1, 2018 … This morning’s U.S. Employment Situation report revealed an uptick from previous months in the number of new jobs created. The figure of 223,000 new jobs was well above the 190,000 tally expected.

Revisions to the two previous months added another 15,000 jobs. Wages rose by a 2.7 percent annualized rate from a year ago, also marginally stronger than expected. Employment strength was seen in retail, health care, construction, professional services, transportation, manufacturing and mining.  Other sectors were essentially flat.  

The headline unemployment rate ticked down to 3.8 percent, its ongoing downward trend defying market predictions that it would remain at April’s level of 3.9 percent. As the U3 declined, the broader measure of labor market, U6, which counts some part-time workers and others not formally included in the narrow definition of “unemployed” but available for full-time work, also fell, .2 percentage points to 7.6 percent. The gap between the two measures has fallen .3 percent over the last year. That is progress, if not huge progress, for as the two converge and fewer workers are available for full-time employment, wages should rise more substantially. 

All in all, the report for May is good. However, it is accompanied by a troubling imposition of tariffs on our allies that could have serious negative consequences. While our economy is currently strong – has been building steam since the so-called Great Recession, a triggering event like a trade war could thrust us quickly into recession. It is difficult to forecast recessions, for one, because recession expectations are self-fulfilling – that is, if everyone comes to expect a recession in the near term, they pull back on spending and we end up in recession. Oil shocks have been the dominant recession trigger in the U.S. in the post-war period, but a serious trade war could do it as well. As it now stands, if there are limited retaliatory rounds, there might not be a problem. But the probability of a problem is a lot higher now than it was yesterday.


About the Author

Tom Cunningham holds a Ph.D. in economics from Columbia University and was senior economist with the Federal Reserve Bank of Atlanta from 1985 to 2015. Mr. Cunningham serves as a consultant to MST in the creation and ongoing development of the MST Virtual Economist and is the MST Advisory economics specialist

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