The focus of the May employment report will likely provide a contrast between underlying strength in the top line, which we expect to show a gain of 175,000 jobs in the month and the slowing of hiring in the manufacturing sector, which has produced a net gain of only 12,000 jobs over the past three months.
Given the quick escalation in the multi-front trade war, going forward policymakers and investors should begin focusing on the goods-manufacturing and goods-producing sectors if the tariff threats the White House has put forward against Mexico are implemented. In our estimation the trade wars the United States finds itself ensnared in are going to cause hiring to slow as business sentiment eases, productivity-enhancing capital expenditures fall off, and the damage eventually spills over into the consumer sector. This may damp some of the celebratory nature of solid job gains and an unemployment rate at 3.6 percent following the publication of the May employment report.
In our estimation the trade wars the United States finds itself ensnared in are going to cause hiring to slow as business sentiment eases, productivity-enhancing capital expenditures fall off, and the damage eventually spills over into the consumer sector.
This risk to our forecast is tilted toward the downside due to a modest deceleration in goods producing and construction jobs linked to soft housing starts and barely-there growth in industrial production. The primary growth in the report will be in the leisure, hospitality and health care sectors.
We expect an increase in average hourly earnings of 0.3 percent, which should result in a change of 3.2 percent from a year ago. These gains will continue to be clustered in the two lower income quintiles, while tight labor supply across the economy continues to modestly boost wages. The three-month average annualized pace of average hourly earnings arrived at 3.04 percent and we expect that to improve slightly after two weak months of wage growth.
