Business Corpus: May Jobs Report A Dud, But Dow Jones Surges As Fed Rate Cut Odds PopThe U.S. economy added just 75,000 jobs in May as the Trump tax cut boost fades. But the Dow Jones surged as Fed rate cut odds rose on the weak jobs report. The post May Jobs Report A Dud, But Dow Jones Surges As Fed Rate Cut Odds Pop appeared first on Investor's Business Daily.

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The key number in the May jobs report confirms the U.S. economy slowed as the boost from the Trump tax cuts ended — even before the latest escalation of the China trade war. Butthe Dow Jones and broader stock market surged in morning trade as odds of a summer rate cut spiked.

The headline jobs report numbers were bad enough: The 75,000 jobs added last month fell about 100,000 below expectations. Meanwhile, average annual hourly wage growth unexpectedly slowed to 3.1%.

Slower Income Growth Signals Tax-Cut Boom Is Over

Although the unemployment rate held at a 49-year low of 3.6%, the jobs report was the worst in terms of income growth since January 2018 — when the tax cuts began to kick in. The key number: Growth in aggregate weekly pay slowed to 4.7% from a year ago. That's down from about 5.5% at the start of the 2019 and the worst since January 2018.

The softening of income gains reflects three things: the slowdown in hiring, more moderate pay gains and the weakest annual growth in economywide hours worked in nearly two years.

After a combined 75,000 downward revision to job gains for March and April, the economy averaged 151,000 new jobs per month over the past three months. That still pretty good, but it pales compared to an average gain of 223,000 jobs per month in 2018.

Average hourly wage growth slowed to 3.1%, the weakest growth since September. Over the past three months, the cumulative 0.6% rise in average hourly wage growth is the weakest stint since December 2017.

Aggregate hours worked constituted the softest part of the report, rising just 1.5% from a year ago. That's the weakest gain since March 2017.

Dow Jones Soars On Fed Rate Cut Hopes

After the jobs report hit, the 10-year Treasury yield dived to 2.06%, the lowest level since September 2017.

After wobbling initially on the weak jobs report the Dow Jones and broader stock market bounced back on optimism for deal to avert tariffs on Mexico and rising odds of a Fed rate cut.

In morning stock market trading, the Dow Jones rose 1.3% and the S&P 500 index 1.4%, moving back above their 50-day moving averages. The Nasdaq composite gained 1.9%.

Before the jobs data, markets were pricing in about 20% odds of a Fed rate cut on June 19 and a 66% chance of a rate cut by July 31. Later in the morning, Fed rate cut odds had risen close to 30% for the June meeting and 80% for July.

Is U.S. Economy Strong Enough To Withstand Trade Fights?

The May jobs report offered the last look at the state of the U.S. job market before President Donald Trump escalated the China trade war, then put Mexico on the hot seat.

The May jobs report reflected business and household surveys taken during the week of May 12. That's just after Trump boosted tariffs on $200 billion in Chinese imports to 25% from 10% on May 10. That move came suddenly, following Trump's May 5 tweet that China had reneged on key commitments.

Surprisingly tepid retail sales data has added more urgency to new questions about the strength of the job market. The takeaway from the broad softness in the May jobs report is that the fading of tax-cut stimulus had the U.S. economy on the cusp of a slowdown even before escalation of the China trade war.

That implies the U.S. economy is more vulnerable to trade conflict than the Fed and many on Wall Street believe.

Trump and Chinese President Xi Jinping will both attend the G-20 meeting in Osaka, Japan, at the end of June. If that comes and goes without a China trade deal or restart of trade talks, business uncertainty will grow.

Fed Chairman Jerome Powell said this week that policymakers will act, if needed, to ameliorate the impact of trade conflict on the U.S. economy. That helped feed a three-day, 900-point Dow Jones rally leading up to Friday's jobs report.

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