US companies added just 90,000 workers in May, according to today’s payrolls report from the Labor Department. The soft gain surprised analysts and marks a hefty slowdown from April’s solid 205,000 increase. The deceleration in growth is worrisome, although mostly because it reflects uncertainty about President Trump’s trade war with China and, more recently, Mexico. If and when these battles end, or at least cool, it’s reasonable to assume that the labor market will rebound. Meantime, employers are taking a cautious approach to hiring.

Michael Feroli, the chief U.S. economist for JPMorgan Chase, says that “it definitely looks like we’ve downshifted in the pace of job growth.” The catalyst, he adds, seems largely bound up with the recent trade conflict. “Overall it’s a disheartening report particularly since you may have some trade effects there, but a lot of the trade tensions escalated” in the second half of May, which is after the reference period for today’s report. As such, the number of new jobs created in May may be even lower than reported.  

Using the data in hand shows that the one-year trend eased to 1.8%, slightly below The Capital Spectator’s point forecast. Nonetheless, a 1.8% year-over-year increase in payrolls is still healthy and so it’s premature to assume the worst, at least just yet.

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History reminds us that monthly numbers, even in the best of circumstances, are noisy and therefore highly misleading. Several times over the past three years we’ve seen the monthly comparison drop sharply, followed by a rebound. No one knows if the pattern will repeat itself this time, but it’s premature to rule out the possibility.

Quite a lot of what happens next is probably related to Trump’s decisions in the days and weeks ahead on the trade front. Meantime, today’s update has strengthened the market’s expectations that the Federal Reserve will cut interest rates, perhaps as early as this month. Fed funds futures are currently estimating a roughly 28% probability that the central bank will trim its target rate (currently at a 2.25%-to-3.0% range) at the FOMC meeting on June 19, based on CME data. The estimate for a cut jumps to a nearly 80% probability for the July policy meeting.

A darker view of today’s numbers is that the slowdown in hiring is less about trade vs. a fading business cycle. Maybe, but recent data suggest that while the economy has slowed, the odds are still low that a recession has started or is about to start in the immediate future.

But given the bearish blowback via trade, today’s disappointing labor market report can’t be dismissed as a temporary, isolated setback. “Overall, the economy is on a fragile footing,” advises Lindsey Piegza, chief economist at Stifel, an investment bank. “We’re still talking about solid growth at the start of the year but that’s in the rearview mirror. The name of the game is uncertainty.”

True, but it’s not yet written in stone that the uncertainty is destined to lead to a new NBER-defined downturn. Macro risk is rising, for various reasons, but we’re still not at the point of no return. Much depends on how the incoming numbers pan out and what the White House does (or doesn’t) do with regards to trade policy, to name but two of the obvious factors to monitor.

Meantime, a fresh run of numbers for projecting the one-year trend in private payrolls continues to anticipate a gradually slowing growth rate. Next month’s update (for June data) is on track to post a 1.7% year-over-year rise, based on The Capital Spectator’s average estimate via a set of combination forecasts. This outlook suggests that the labor market will continue to provide support for growth in this year’s second half, albeit on a slowly weakening basis.

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That’s old news. Softer growth generally has been standard fare on these pages for some time (see last week’s update on second-quarter GDP nowcasts, for instance). But for now, softer growth doesn’t mean that a new recession is imminent.

If the economy can dodge a bullet, it’s probably related to better-than-expected news on trade. That puts Trump in the driver’s seat—exactly where he likes to be. The only glitch: history suggests that Trump’s decisions to come are as clear as mud.