Forecasters expect to see another robust jobs number Friday when the Labor Department releases its snapshot of May employment. Details within the report may offer some clues of how the Trump administration's ongoing trade battles are affecting the job market.
Economists surveyed by Reuters expect the report to show employers added about 185,000 jobs last month. That would be down from a blockbuster reading of 263,000 jobs in April, but above the 3-month average of 169,000 jobs. The unemployment rate is expected to hold steady at 3.6% — near a 50-year low.
Manufacturing has been a soft spot in recent months, with just 4,000 factory jobs added in April and none the month before. An index of manufacturing activity released Monday fell to its lowest level in 2 1/2 years.
Manufacturing is especially sensitive to trade disputes, which can raise costs, disrupt supply chains and depress foreign demand. Last month, the administration increased tariffs on $200 billion worth of imports from China. The president has also threatened to impose tariffs on imports from Mexico, beginning next week.
"There's increasing evidence that the ongoing trade war here is beginning to have some tangible effects on the U.S. economy," said Tim Quinlan, a senior economist at Wells Fargo Securities. "We're not on the edge of the cliff here. But the pace of expansion in [manufacturing] is the slowest of the Trump era."
The picture is different in the much larger services sector, where tariffs seem to be taking less of a toll. An index of service activity released on Wednesday showed accelerating growth. More than three-quarters of the jobs added in April were in the services sector.
"The question moving forward is whether or not slowing growth in the goods sector could pull down the services sector," said Martha Gimbel, director of economic research at Indeed Hiring Lab. "Goods industries in general are more sensitive to trade wars, commodity prices and other unpredictable factors."
An escalation of the trade battle with Mexico could be especially damaging to the auto industry.
"I don't think it's possible to overstate how integrated the North American manufacturing process is," Quinlan said. "Quintessentially 'American-made' vehicles rely on parts made in Mexico. So Ford's F-150, for example, is 15% Mexican made. Forty-four percent of the Chevy Silverado comes from Mexico. So supply chain disruptions here could really pose significant harms to U.S. business interests."
That worries central bankers, who are eager to keep the economy growing in the face of rising trade tensions.
"We don't know how or when these issues will be resolved," Federal Reserve Chairman Jerome Powell said this week. "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."
The Fed's interest rate-setting committee is set to meet in less than two weeks.
One thing policymakers will be watching in Friday's jobs report is the labor force participation rate, which declined in both March and April. Less than 63% of the eligible population is currently working or looking for work. Unless more people who are on the sidelines can be lured back into the workforce, it will be difficult to maintain a robust pace of hiring.
Wages have also been inching up, although not as fast as one might expect, given the rock-bottom unemployment rate. For the year ending in April, wages rose by an average of 3.2%.