Slowing job growth raises 2020 stakes for Trump
An underwhelming August jobs report is adding to fears of an economic slowdown, raising the stakes for President TrumpDonald John TrumpPompeo pressed on possible Senate run by Kansas media The Hill’s 12:30 Report: Trump digs in on Hurricane Dorian projection Trump’s mental decline is perfectly clear for those with eyes to see and ears to hear MORE‘s reelection bid.
The U.S. added roughly 130,000 jobs in August, according to federal data released Friday, undershooting economists’ expectations as the labor market continues to slow.
The resilient job market has been one of Trump’s top selling points as he attempts to win re-election on the strength of the U.S. economy. But the disappointing August jobs report threatens to undercut Trump’s message ahead of a critical stretch for the economy.
The report comes as the Trump administration and China try to revive trade talks after more than a year of tit-for-tat tariffs between the world’s two largest economies.
Deputy staff-level talks are set to begin later this month with hopes that they will open the door to a meeting between higher-level officials sometime in October.
But with just 14 months until the 2020 election, Trump faces a narrowing window to strike a truce with China that could steer the U.S. away from the edge of a recession.
While trade experts have ruled out the chance of a comprehensive agreement, the U.S. and China could seek a smaller deal to ease tensions and tariffs.
Failure to do so could derail not only the U.S. economy, but Trump’s shot at another White House term.
“Today’s employment data, coupled with earlier revisions to 2018, suggest that we have hit a tipping point,” wrote Diane Swonk, chief economist at Grant Thornton, in a Friday research note.
“That is likely in response to trade tensions and the weakness we are seeing abroad.”
Trump has remained defiant in the face of growing pressure to end his trade war with China, downplaying the risks to the economy and talk that he is losing leverage. The president has repeatedly warned Beijing not to wait to strike a deal with his potential successor, insisting the U.S. economy is strong enough to weather a battle with China.
“‘China is eating the Tariffs.’ Billions pouring into USA. Targeted Patriot Farmers getting massive Dollars from the incoming Tariffs! Good Jobs Numbers, No Inflation(Fed). China having worst year in decades. Talks happening, good for all!,” Trump tweeted Friday.
The president also took a shot at the media’s reporting on the economy.
“The Economy is great. The only thing adding to ‘uncertainty’ is the Fake News!” Trump added just hours after the jobs report was released.
So far, consumers have been largely insulated from the direct effects of Trump’s trade war, even as business expansion, manufacturing and other trade-sensitive sectors faltered.
While the U.S. faces higher odds of a recession, the country still enjoys a strong labor market, steady consumer spending, and solid wage growth. Roughly 571,000 people joined the workforce in August, pushing the labor force participation rate higher and keeping unemployment steady at 3.7 percent.
“The stories in the paper have generated a psychology that is vastly worse than the reality,” National Economic Council Director Larry KudlowLawrence (Larry) Alan KudlowMORE told reporters at the White House on Friday. “The underlying strength of the economy is much better than folks might think.”
Even so, months of fading industrial output, heightened tensions and dour economic data from abroad appear to be closing in on the job market.
Job growth has cooled considerably from a torrid 2018 as the average monthly job gain has fallen from 234,000 last year to 158,000 in 2019. Economists say job growth has slumped toward the 100,000 monthly average gain that is required to stave off a recession.
“The impact of the trade war … is now spilling over into the real economy,” wrote Joseph Brusuelas, chief economist at RSM, in a Friday research note. “Friday’s government report illustrates the unflattering shape of things to come.”
The next test for the U.S. labor market will come in October, when Trump is set to raise tariffs on $250 billion in Chinese imports to 30 percent from 25 percent. The president is also set to finish imposing a 15 percent tariff on another $320 billion tranche of Chinese goods in December after applying the taxes to roughly half of those goods on Sept. 1.
The Federal Reserve is expected to soften that blow with a rate cut when the bank’s policy committee meets in Washington later this month. The independent central bank is likely to issue a moderate 0.25-percentage point cut as a hedge against a potential downturn, far less than the 1-percentage point cut Trump is seeking.
Trump has asked the Fed to slash interest rates in half from their 2 percent to 2.25 percent range, demanding a level of stimulus last seen during the 2008 recession. The president renewed his attacks on the Fed and his handpicked chairman, Jerome Powell, in a tweet posted shortly before the jobs report was released.
“They were WAY too early to raise, and Way too late to cut – and big dose quantitative tightening didn’t exactly help either,” Trump tweeted. “Where did I find this guy Jerome? Oh well, you can’t win them all!
Powell countered during a Friday speech in Switzerland that “the most likely outlook for the U.S. is still moderate growth, a strong labor market, and inflation continuing to move back up,” brushing off calls for a steep cut.
But the chairman also acknowledged that the Fed could only do so much to protect the economy from trade policy. The ball remains in Trump’s court.
“Uncertainty around trade policy is causing some companies to hold back now on investment,” Powell said.