Job growth sputters in May, but Wall Street rallies as investors bank on Fed rescue

Hiring cooled in May, the Labor Department reported Friday, as firms appeared more hesitant to bring on new employees amid the uncertainty and concern over President Trump escalating the trade war with China.

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 that 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 less 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.

“The slowdown is really coming from the sectors that are most susceptible to trade tensions like manufacturing, construction, mining and logging. That does make me worried,” said Martha Gimbel, research director for Indeed.com’s Hiring Lab.

Calls are growing for the Federal Reserve to reduce interest rates to counter Trump’s trade moves. Wall Street now sees more than a 75 percent probability the Fed will cut rates by the end of July. Despite the disappointing hiring, stocks rallied on Friday with the Dow Jones Industrial Average jumping more than 200 points as investors believe the Fed will act soon.

“These data make it easier for the Fed to ease either this month or next,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

There was widespread expectation among economists that growth and hiring would slow this year after such a strong 2018 that was boosted by the tax cuts and additional government spending. But experts are struggling to deduce how much of the cool off is normal now that the expansion is 10 years old versus how much is being driven by trade fears.

Kevin Hassett, Trump’s chief economist, argues the global slowdown is weighing on the United States but that the underlying fundamentals still point to a very strong year.