May jobs report suggests a slowing economy – and possibly an imminent interest rate cut

The latest jobs data suggests an interest rate cut may be imminent.

The Labor Department reported on June 7 that U.S. nonfarm payroll employment increased by 75,000 in May, while the unemployment rate remained unchanged at 3.6%. This level of job creation was well below economists’ forecasts of about 185,000 new jobs, as well as below the average monthly increase of 164,000 in 2019 and 223,000 in 2018.

Although it’s difficult – even for an economist like me who studies economic policy – to interpret the data reported in any one jobs report as the beginning of a trend, the latest numbers do suggest the Federal Reserve may have to lower its benchmark interest rate to shore up the economy.

That may happen as soon as this month, when the Fed’s interest rate-setting panel, the Federal Open Market Committee, convenes its next meeting June 18-19. A cut would be a sharp reversal from Fed policy as recently as December, when it last raised the rate.

Even before the May jobs data, the Fed was signaling it was ready to act. Its chair, Jerome H. Powell, said as much on June 4. Alluding to the Trump administration’s ongoing trade dispute with China and the imminent imposition of migration-related tariffs on Mexico, Powell said that the Fed “will act as appropriate to sustain the expansion.”