High expectations in the US for Strong NFP May report as pressure from trade war continues
With job growth in the US expected to have expanded in the month of May, and an increase in salaries indicating a strong labor market, economists have warned that as trade disputes intensify between China and recently with the proposed imposition of tariffs on Mexico, the US economy could be at risk of deceleration.
Despite the fact that analysts have forecast a promising NFP report on Friday 7th of June, it may not influence the financial market’s prediction of a reduction of interest rates by the Federal Reserve as the ongoing US-China trade war and the imminent tariff dispute between the US and Mexico strain the economy. Jerome Powell, Federal Reserve Chairman said:
“I’d like first to say a word about recent developments involving trade negotiations and other matters. We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective. My comments today, like this conference, will focus on longer-run issues that will remain even as the issues of the moment evolve.”
“As the experience of the past decade showed, extended ELB episodes can be associated with painfully high unemployment and slow growth or recession. Economic weakness puts downward pressure on inflation, which can raise real interest rates and reinforce the challenge of supporting needed job growth. In addition, over time, inflation has become much less sensitive to tightness in resource utilization. This insensitivity can be a blessing in avoiding deflation when unemployment is high, but it means that much greater labor market tightness may ultimately be required to bring inflation back to target in a recovery. Using monetary policy to push sufficiently hard on labor markets to lift inflation could pose risks of destabilizing excesses in financial markets or elsewhere.”
Click here to read the full statement by Fed Chairman Jerome Powell.
The Trump administration increased tariffs on roughly 200 billion dollars’ worth of Chinese imports from 10 to 25 percent last month, which then provoked China to respond by threatening to cut rare earth quotas. Furthermore, on May 30th President Trump tweeted that ‘On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied at which the Tariffs will be removed.’
A survey conducted by Reuters that took the analysis from various economists suggests that Nonfarm payrolls may have risen by nearly 190,000 jobs in May following an increase of 263,000 two months ago in April.
Joseph Brusuelas, RSM US’s chief economist told Reuters that: “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.”
Experts will be closely monitoring the manufacturing payrolls for any indications that could show what effect the tariffs are having on the overall health of the US economy. As the manufacturing sector is becoming increasingly concerned with the consequences of increased tariffs on imports, factory production has depleted, and sentiment has fallen to the lowest level since 2016.
Monthly earnings are likely to have risen slightly in May, with earnings per hour expected to rise by 0.3 percent. Despite the stable increase in earnings reinforcing the Federal Reserve’s forecast that inflation could recoil back to the Fed’s target of 2 percent, but analysts have suggested that this may not be the case due to the uncertainty surrounding the various trade disputes with China and Mexico.
Forecasts for unemployment in the US for the month of May is anticipated to stay at a record-low rate of 3.6 percent. Manufacturing payrolls are expected to show a rise by 5 thousand, on the other hand, the car sector may have conducted further job cuts as factories cut back on production to deal with a drop in demand and climate change.
With talks between Mexico and the US going ahead, markets surge as forecasts of an agreement seems possible.
The second day of trade and migration negotiations have taken place between Mexico and the US, and as forecasts of a deal just around the corner the markets rose as a result. However, it was not certain whether Mexican efforts to tame migration would convince President Trump enough to reconsider the proposed 5 percent tariffs scheduled for June 10th.
The Trump administration announced on May 30th that an imminent imposition of 5 percent tariffs would be put into effect starting on June 10th, on all imports from Mexico, unless the migration crisis is adequately dealt with by the Mexican government.
On June 5th negotiations between Mexico and the US began in an attempt to reach an agreement, many officials from both sides of the talks want to avoid the tariffs. US stocks and oil markets surged on June 6th after signs that a deal could be on the horizon.
“I’ve been receiving reports throughout the day as those negotiations have continued at the state department and we’re encouraged that frankly the Mexican delegation brought even more proposals today. We have announced that 5 percent tariffs are going to be imposed on all goods coming in from Mexico on Monday, and if we don’t see the results that we need to see by Mexico in the months ahead those tariffs will increase. Our hope is that Mexico will respond. The President is fully prepared not just to impose the 5% tariffs but to increase those tariffs in the months ahead. But we hope for better. We hope to see Mexico step up and take such action that’s necessary to end this crisis of illegal immigration at our Southern border. If they take that action in earnest, we believe that we will be the best neighbors they ever had.” US Vice President Mike Pence said.
To watch Vice President Mike Pence’s full statement click here.
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