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Why The Stock Market Went Up After The Labor Department Released Weak Jobs Report


What has been a white-hot job market in the United States now shows signs of cooling off. According to the Labor Department, employers added just 75,000 jobs last month. That's well below expectations. Wage growth also dipped a bit even though the unemployment rate held steady at a low 3.6%.

The weak jobs report is another sign of a slowdown in the U.S. economy, but you wouldn't know that to look at the stock market, which boomed again today. Here to help us sort this out is NPR's Scott Horsley. Hey, Scott.


SHAPIRO: Before we get to the stock market, how big a warning sign for the economy is this new jobs report?

HORSLEY: It is definitely a yellow caution flag especially because the slowdown in hiring is consistent with some of the other indicators we've been watching, including an index of manufacturing activity. We always say don't make too much out of any one month's job number, but job gains for March and April were also revised down by a total of 75,000. So now the average job growth over the last three months is running about 150,000 jobs per month. Diane Swonk, who's chief economist at Grant Thornton, says that's a pretty big downshift from what we were seeing last year.

DIANE SWONK: Jobs growth has slowed considerably from 2018 to 2019. Some of that was expected. Some of it is also due to weakness tied to tariffs and the global trade tensions we're facing.

HORSLEY: And those trade tensions, Ari, are only going to get worse. It was in May that the president ordered higher tariffs on some $200 billion worth of goods the U.S. buys from China. Now President Trump's threatening to add tariffs on everything we buy from Mexico. If Trump follows through with that, it would more than double the volume of imports subject to the president's tax.

SHAPIRO: The White House often talks about how strong the economy is. How are they spinning this disappointing report?

HORSLEY: As you might expect, they are trying to put the best face on it. Kevin Hassett, who is about to step down as White House economist, notes that Midwestern flooding may have had something to do with the jobs numbers. And it certainly may have dampened the total, although it wouldn't explain the full slowdown. Hassett also argues that whatever short-term pain the trade war might be causing, there could be a payoff in the long run.

KEVIN HASSETT: I think that going forward, there's still a big upside potential for a trade deal with China. And, you know, we're all in helping prepare the president and the team for, you know, what are hoped to be positive talks at the G20 meeting.

HORSLEY: Trump is set to meet with his Chinese counterpart on the sidelines at the G20 later this month. You're right. A strong economy has been one of the president's central bragging points, so a slowdown could be politically costly. For now, though, Hassett at least is sticking with his projection of 3% economic growth this year.

SHAPIRO: Did this report show weakness in some sectors more than others?

HORSLEY: We tend to think of manufacturing as especially vulnerable to the trade war. But really there was weakness across the board. Retail shed another 7,600 jobs. Service sector jobs overall were about half what they were the month before. All that is a worrisome sign that the slowdown on the factory floor might be bleeding over to the rest of the U.S. economy.

SHAPIRO: OK, so the thing I really want you to explain - with all this disappointing news, why is the stock market going up?

HORSLEY: This is one of those perverse times when bad news on Main Street is good news on Wall Street. Investors are betting that the Federal Reserve will respond to this economic slowdown by cutting interest rates and that it will do so sooner rather than later. Economist Swonk does think if the Fed cuts rate, it will have plenty of justification.

SWONK: This is not the Fed capitulating to financial markets or capitulating to a president. It is them reacting to an economy that is now weakening. Some of it's self-inflicted, but nonetheless, they have to deal with it.

HORSLEY: Fed Chairman Jay Powell did say this week that the Fed is prepared to do what's necessary to extend the decade-old economic expansion. And the Fed's interest rate setting committee is scheduled to meet, Ari, in less than two weeks.

SHAPIRO: That's NPR's Scott Horsley on the new monthly jobs report. Thanks, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.