The US economy experienced a slowdown in hiring last month due to the ongoing impact of Donald Trump’s trade war, but there was no significant increase in unemployment. Official data, excluding seasonal workers, revealed the creation of 139,000 net new jobs in May, slightly higher than the expected 130,000 and lower than the previous month’s 147,000. Despite the slowdown in hiring, the unemployment rate remained steady at 4.2%, and hourly pay rates saw an increase.
The release of these figures comes at a time when the health of the US economy is under close scrutiny, with concerns about a possible recession risk due to the effects of the trade war initiated by the US president. Unlike most developed economies, a downturn in the US economy is not solely determined by negative growth for two consecutive quarters but is assessed by a committee of respected economists known as the Business Cycle Dating Committee.
The administration’s protectionist agenda and the threat of tariffs were attributed to a sharp slowdown in growth in the first quarter of the year. Economists have faced challenges in predicting official data due to the unpredictable nature of tariff implementation. The impact of the trade war on the domestic economy remains a focal point for analysts, with recent data showing a significant drop in US imports in April.
Looking ahead, upcoming inflation figures will provide insights into whether import duty price increases are affecting the spending power of businesses and consumers. The data is crucial for the US central bank, especially as it has paused interest rate cuts due to trade war uncertainties. The recent forecast by the OECD suggests a potential rise in consumer price inflation later in the year, currently standing at an annual rate of 2.3%.
Concerns about a US recession, trade war uncertainties, and mounting worries about the sustainability of US debt have led to cautious market sentiments. While US stock markets have remained relatively flat this year, the dollar index has seen a 9% decline, marking its worst annual performance since 2017. European stocks have shown slight gains in response to employment data, while US futures point to a similar trend.
Despite the positive outlook on the figures, the reaction was subdued as the data fell within expectations. Investment manager Nicholas Hyett noted that the US labor market has weathered the uncertainty caused by tariffs, with job creation outpacing expectations in May. However, the strong economy and rising wages may deter the Federal Reserve from cutting interest rates, further complicating fiscal plans outlined in Trump’s «Big Beautiful Bill.»
As uncertainties persist, particularly in the context of the trade war and its implications, the path ahead for the US economy remains uncertain. The interplay between economic indicators, policy decisions, and external factors will continue to shape the trajectory of the world’s largest economy.
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