S&P 500 hits all-time high on trade optimism

FILE PHOTO: Traders work on the main trading floor after the opening bell at New York Stock Exchange (NYSE) in New York, U.S. June 20, 2019. REUTERS/Brendan McDermid/File Photo

By Amy Caren Daniel and Shreyashi Sanyal

(Reuters) – The S&P 500 touched a record high for the second straight session on Friday as hopes of trade talks between Washington and Beijing were lifted by U.S. Vice President Mike Pence’s decision to defer a planned speech on China policy.

The decision was taken amid “positive signs” that trade talks with China could be back on track, the Wall Street Journal reported, citing a senior administration official.

The benchmark S&P 500 index hit an intraday high of 2,964.15 on Friday, but retreated into a tight range as rising tensions between the United States and Iran kept investors on edge.

The United States and China have said they would restart their trade talks after a lull at the Group of 20 summit in Japan next week.

“Investors are cautiously optimistic about the G20 summit. If they make progress then markets will celebrate that,” said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee.

Stocks are now set to log their third straight week of gains, after posting their worst monthly performance this year in May on fears the prolonged trade war would hit global economic growth.

U.S. President Donald Trump said on Friday he aborted a military strike on Iran in response to Teheran downing a U.S. drone, but the possibility of a U.S. retaliation pushed crude prices higher and helped lift the energy sector by 0.49%. [O/R]

Traders also pointed to higher volatility during Friday’s session on account of “quadruple witching,” as investors unwind interests in futures and options contracts prior to expiration.

At 13:09 p.m. ET, the Dow Jones Industrial Average was up 45.72 points, or 0.17%, at 26,798.89 and the S&P 500 was down 0.53 points, or 0.02%, at 2,953.65.

The Nasdaq Composite was down 7.13 points, or 0.09%, at 8,044.21.

The tech-heavy index was weighed down by a 2.02% fall in PayPal Holdings Inc after the digital payments company said its chief operating officer Bill Ready would step down.

CarMax Inc rose as much as 6% to a record high after the used-vehicles retailer posted quarterly results above analysts’ expectations.

Carnival Corp fell for the second day, down 4.53%, and among the biggest decliners. Several brokerages trimmed their price targets after the cruise operator cut its 2019 profit forecast.

Declining issues outnumbered advancers for a 1.47-to-1 ratio on the NYSE and for a 1.71-to-1 ratio on the Nasdaq.

The S&P index recorded 33 new 52-week highs and two new lows, while the Nasdaq recorded 42 new highs and 49 new lows.

(Reporting by Amy Caren Daniel and Shreyashi Sanyal in Bengaluru; Editing by Sriraj Kalluvila)

Fed holds rates steady, signals cuts possible later this year

Federal Reserve Chairman Jerome Powell holds a news conference following a two-day Federal Open Market Committee meeting in Washington, U.S., June 19, 2019. REUTERS/Kevin Lamarque

By Howard Schneider and Jason Lange

WASHINGTON (Reuters) – The U.S. Federal Reserve held interest rates steady on Wednesday but signaled possible rate cuts of as much as half a percentage point over the remainder of this year, as it responded to increased economic uncertainty and a drop in expected inflation.

The U.S. central bank said it “will act as appropriate to sustain” the economic expansion as it approaches the 10-year mark and dropped a promise to be “patient” in adjusting rates. Nearly half its policymakers now show a willingness to lower borrowing costs over the next six months.

While new economic projections showed policymakers’ views of growth and unemployment largely unchanged, they saw headline inflation at just 1.5 percent for the year, down from the 1.8 percent projected in March.

They also expect to miss their 2 percent inflation target next year as well.

Seven of 17 policymakers said they expected it would be appropriate to cut rates by half of a percentage point by the end of 2019, and an eighth saw a rate cut of a quarter point as appropriate.

That was not enough to change the median outlook for the Fed’s targeted overnight lending rate, which officials projected to remain in a range of between 2.25% and 2.50% for the rest of this year.

But it still represented a significant shifting of views on the Fed. It appeared many, and perhaps most, policymakers trimmed a full half percentage point from their outlook for rates. Only one policymaker continues to see a rate hike as likely in 2019.

The long-run federal funds rate, a barometer for the state of the economy over the long term, was cut to 2.50% from 2.80%.

U.S. stocks turned higher after the Fed’s statement was released, with the benchmark S&P 500 up about 0.25% from the previous day’s close. Ahead of the statement, stocks had been fractionally lower on the day.

Yields on U.S. Treasury securities, which had been modestly higher before the rate decision was released, slipped. The 10-year Treasury note yield was down 1 basis point at just shy of 2.05%. The dollar weakened against the euro.

Along with the change in the policy statement, Wednesday’s projections open the door for the central bank to lower rates in short order if the economy weakens, or U.S. trade disputes with China and other nations escalate.

The Fed continued to regard the labor market as “strong” and said “sustained expansion of economic activity” and eventually rising inflation were still “the most likely outcomes.” The drop in inflation, however, was a blow for a central bank hoping to reach its target sometime next year.

Fed Chairman Jerome Powell will hold a press conference at 2:30 p.m. EDT (1830 GMT) to elaborate on the results of the policy meeting, which was the first since President Donald Trump raised tariffs on $200 billion of Chinese imports and threatened, though ultimately decided against, imposing new tariffs on Mexican goods.

Those actions caused Fed officials to change their tone from largely dismissing the macroeconomic fallout of Trump’s trade policies to worrying that a new world order of persistent high tariffs and reordered global supply chains could be emerging.

St. Louis Fed President James Bullard, who had argued that rates should be cut, dissented in Wednesday’s policy decision.

(Reporting by Howard Schneider and Jason Lange; Editing by Paul Simao)

U.S. housing starts fall, but prior months revised up

FILE PHOTO: Single family homes being built by KB Homes are shown under construction in San Diego, California, U.S., April 17, 2017. REUTERS/Mike Blake/File Photo

WASHINGTON (Reuters) – U.S. homebuilding unexpectedly fell in May, but data for the prior two months was revised higher and building permits increased, suggesting that the housing market was drawing some support from a sharp decline in mortgage rates.

Housing starts dropped 0.9% to a seasonally adjusted annual rate of 1.269 million units last month amid a drop in the construction of single-family housing units, the Commerce Department said on Tuesday.

Data for April was revised up to show homebuilding rising to a pace of 1.281 million units, instead of increasing to a rate of 1.235 million units as previously reported. Housing starts in March were also stronger than initially estimated.

Economists polled by Reuters had forecast housing starts edging up to a pace of 1.239 million units in May. Single-family housing starts fell in the Northeast, the Midwest and West, but rose in the South, where the bulk of homebuilding occurs.

Building permits rose 0.3% to a rate of 1.294 million units in May. It was the second straight monthly increase in permits. Building permits have been weak this year, with much of the decline concentrated in the single-family housing segment. The housing market hit a soft patch last year and has been a drag on economic growth for five straight quarters.

The sector is being constrained by land and labor shortages, which are making it difficult for builders to fully take advantage of lower borrowing costs. As a result, the housing market continues to struggle with tight inventory, leading to sluggish sales growth.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci) ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters Messaging: lucia.mutikani.thomsonreuters.com@reuters.net)

U.S. weekly unemployment claims rise; imported inflation weak

FILE PHOTO: People wait in line to attend TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. REUTERS/Lucy Nicholson/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing applications for unemployment benefits unexpectedly rose last week, which could add to concerns that the labor market was losing steam after job growth slowed sharply in May.

Other data on Thursday showed import prices fell by the most in five months in May amid a broad decline in the cost of goods, the latest indication of muted inflation pressures. Signs of a slowing labor market and tepid inflation strengthen the case for the Federal Reserve to cut interest rates this year.

U.S. central bank policymakers are scheduled to meet on June 18-19 against the backdrop of rising trade tensions. Financial markets have priced in at least two rate cuts by the end of 2019. A rate cut is not expected next Wednesday.

Initial claims for state unemployment benefits rose 3,000 to a seasonally adjusted 222,000 for the week ended June 8, the Labor Department said on Thursday. Economists polled by Reuters had forecast claims decreasing to 216,000 in the latest week.

While layoffs remain relatively low, the third straight weekly increase in claims suggests some softening in labor market conditions. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 2,500 to 217,750 last week.

The economy created only 75,000 jobs in May, with annual wages increasing at their slowest pace in eight months, the government reported last week. U.S. financial markets were little moved by the claims data.

The slowdown in hiring, which occurred before a recent escalation in trade tensions between the United States and China, raised fears of a sharp deceleration in economic growth. The claims data is being closely monitored for signs of any fallout from the trade war.

President Donald Trump in early May imposed additional tariffs of up to 25% on $200 billion of Chinese goods, prompting retaliation by Beijing. Trump on Monday threatened more duties on Chinese imports if no deal was reached when he meets Chinese President Xi Jinping at a G20 summit later this month in Japan.

A tariff on all goods from Mexico to force authorities in that country to stop immigrants from Central America from crossing the border into the United States was narrowly averted after the two nations struck an agreement late on Friday.

ECONOMY SLOWING

Data so far have suggested a sharp slowdown in U.S. economic growth in the second quarter after a temporary boost from exports and an accumulation of inventory early in the year. In addition to the sharp moderation in hiring last month, manufacturing production, exports and home sales dropped in April, while consumer spending cooled.

The Atlanta Fed is forecasting gross domestic product increasing at a 1.4% annualized rate in the April-June quarter. The economy grew at a 3.1% pace in the first quarter.

In another report on Thursday, the Labor Department said import prices dropped 0.3% last month, the biggest decline since last December, after edging up 0.1% in April.

Economists had forecast import prices slipping 0.2% in May. In the 12 months through May, import prices fell 1.5% after decreasing 0.3% in April. The report came on the heels of data on Wednesday showing consumer prices remained tame in May.

Import prices exclude duties. In May, prices for imported fuels and lubricants declined 1.0% after rising 1.7% percent in the prior month. Imported food prices dropped 0.8% last month after surging 2.7% in April.

Excluding fuels and food, import prices slipped 0.2% in May after falling 0.3% in the prior month. So-called core import prices decreased 1.5% in the 12 months through May. Though the dollar has weakened a bit this year, its gains last year against the currencies of the United States’ main trading partners continue to depress core import prices.

The cost of imported capital goods declined 0.1% last month. Prices for imported consumer goods excluding automobiles was unchanged. The cost of goods imported from China edged down 0.1% last month after falling 0.2% in April. Prices fell 1.4% in the 12 months through May, the largest drop since February 2017.

The report also showed export prices fell 0.2% in May, with prices for both agricultural and nonagricultural products dropping. Export prices nudged up 0.1% in April. They fell 0.7% on a year-on-year basis in May after gaining 0.2% in April. Soybean prices tumbled 20.6% year-on-year.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

U.S. job openings dip as hiring hits record high

FILE PHOTO: Job seekers speak with potential employers at a City of Boston Neighborhood Career Fair on May Day in Boston, Massachusetts, U.S., May 1, 2017. REUTERS/Brian Snyder

WASHINGTON (Reuters) – U.S. job openings fell slightly in April as hiring surged to a record high, government data showed on Monday.

Job openings, a measure of labor demand, slipped to a seasonally adjusted 7.4 million from 7.5 million in March, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS. The job openings rate was unchanged at 4.7%.

Hiring jumped by 240,000 jobs in April to 5.9 million, the highest level since the government started tracking the series in 2000. The hiring rate increased to 3.9% from 3.8% in March.

The economy created 75,000 jobs in May after adding 224,000 positions in April, the government reported last Friday.

The unemployment rate was unchanged near a 50-year low of 3.6%.

(Reporting by Lucia Mutikani; Editing by Susan Thomas)

With Venezuela in collapse, towns slip into primitive isolation

A man weighs coffee beans, given as a means of payment, in a hardware store in Guarico, Venezuela April 24, 2019. Picture taken April 24, 2019. REUTERS/Manaure Quintero NO RESALES. NO ARCHIVES.

By Corina Pons

PATANEMO, Venezuela (Reuters) – At the once-busy beach resort of Patanemo, tourism has evaporated over the last two years as Venezuela’s economic collapse has deepened and deteriorating cellphone service left visitors too afraid of robbery to brave the isolated roads.

Gone are the vendors who once walked the sands of the crescent-shaped beach hawking bathing suits and empanadas – a traditional savory pastry.

These days, its Caribbean shoreline flanked by forested hills receives a different type of visitor: people who walk 10 minutes from a nearby town carrying rice, plantains or bananas in hopes of exchanging them for the fishermen’s latest catch.

With bank notes made useless by hyperinflation, and no easy access to the debit card terminals widely used to conduct transactions in urban areas, residents of Patanemo rely mainly on barter.

It is just one of a growing number of rural towns slipping into isolation as Venezuela’s economy implodes amid a long-running political crisis.

From the peaks of the Andes to Venezuela’s sweltering southern savannahs, the collapse of basic services including power, telephone and internet has left many towns struggling to survive.

The subsistence economy stands in stark contrast to the oil boom years when abundance seeped into the most remote reaches of what was once Latin America’s richest nation.

“The fish that we catch is to exchange or give away,” said Yofran Arias, one of 15 fishermen who have grown accustomed to a rustic existence even though they live a 15-minute drive from Venezuela’s main port of Puerto Cabello.

“Money doesn’t buy anything so it’s better for people to bring food so we can give them fish,” he said, while cleaning bonefish, known for abundant bones and limited commercial value.

In visits to three villages across Venezuela, Reuters reporters saw residents exchanging fish, coffee beans and hand-picked fruit for essentials to make ends meet in an economy that shrank 48% during the first five years of President Nicolas Maduro’s government, according to recent central bank figures.

Venezuela’s crisis has taken a heavy toll on rural areas, where the number of households in poverty reached 74% in 2017 compared with 34% in the capital of Caracas, according to an annual survey called Encovi carried out by private Venezuelan universities.

Residents rarely travel to nearby cities, due to a lack of public transportation, growing fuel shortages and the prohibitive cost of consumer goods.

In some regions, travel requires negotiating roads barricaded by residents looking to steal from travelers. At one such roadblock in eastern Venezuela, a Reuters witness saw a driver fire gunshots in the air to disperse a crowd

“I haven’t been to the city center in almost two years. What would I do there? I don’t have enough (money) to buy a shirt or a pair of shorts,” said a fisherman in Patanemo who identified himself only as Luis.

“I’m better off here swapping things to survive.”

COFFEE FOR FUEL

Venezuela is suffering one of the worst economic collapses in modern history. Inflation has topped 1 million percent, according to figures released by the opposition-run congress. The United Nations says 4 million citizens have fled Venezuela, 3.3 million of them since 2015.

A fisherman carries a plastic bag full of fish that can be used as a means of payment at a fishermen's camp in Patanemo, Venezuela May 17, 2019. REUTERS/Manaure Quintero

A fisherman carries a plastic bag full of fish that can be used as a means of payment at a fishermen’s camp in Patanemo, Venezuela May 17, 2019. REUTERS/Manaure Quintero

Maduro blames the situation on an “economic war” waged by his political adversaries as well as U.S. sanctions that have hobbled the oil industry and prevented his government from borrowing abroad.

The central bank in April released economic indicators for the first time in the nearly four years, showing a less severe cataclysm than figures published by Congress. But the bank’s data underscored a dramatic contraction and spiraling consumer prices, nonetheless.

The bolivar has lost 99% of its value since Maduro took office in 2013.

In the mountains of the central state of Lara, residents of the town of Guarico this year found a different way of paying bills – coffee beans.

Residents of the coffee-growing region now exchange roasted beans for anything from haircuts to spare parts for agricultural machinery.

“Based on the cost of the product, we agree with the customer on the kilos or number of bags of coffee that they have to pay,” said hardware store manager Haideliz Linares.

The transactions are based on a reference price for how much coffee fetches on the local market, Linares said. In April, one kilo (2.2 pounds) of beans was worth the equivalent of $3.00.

In El Tocuyo, another town in Lara state, three 100 kilo sacks of coffee buy 200 liters (53 gallons) of gasoline, which is in increasingly short supply in the OPEC nation due to chronic operational problems at state oil company PDVSA.

Keila Ovalles works in her garden to harvest vegetables and fruit, which she uses to for bartering, in Borburata, Venezuela May 17, 2019. REUTERS/Manaure Quintero

Keila Ovalles works in her garden to harvest vegetables and fruit, which she uses to for bartering, in Borburata, Venezuela May 17, 2019. REUTERS/Manaure Quintero

In Borburata, another town a few miles from Patanemo, Keila Ovalles harvests eggplant, tomato and passion fruit in the backyard of her modest home. She said it was similar to the way her family lived in the early 20th century.

She stopped drinking coffee after being unable to pay for it, and now makes tea out of lemongrass instead.

“I tell the guys that I’m swapping passion fruit for something else, they spread the word and someone always comes,” said the 55-year-old woman.

(Reporting by Corina Pons; additional reporting by Keren Torres in Guarico, Tibisay Romero in Valencia and Angus Berwick in Cumana; Editing by Daniel Flynn and Tom Brown)

U.S.-Mexico migration talks continue as tariff deadline looms

Mexico's Foreign Minister Marcelo Ebrard exits the U.S. State Department to speak to reporters after a meeting between U.S. and Mexican officials on immigration and trade in Washington, U.S., June 6, 2019. REUTERS/Leah Millis

By Susan Heavey and Anthony Esposito

WASHINGTON/MEXICO CITY (Reuters) – U.S. and Mexican negotiators resumed migration talks on Friday as the two sides edged closer to a trade war that could hobble both countries’ economies and rattle investors already nervous about Washington’s escalating battle with China.

U.S. President Donald Trump has warned that tariffs of 5% will be imposed on all Mexican exports to the United States on Monday if Mexico does not step up efforts to stem an increase in mostly Central American migrants heading for the U.S. border.

“As negotiations continued yesterday, we were more encouraged that they came forward with some of the things we put on the table Wednesday to say they were open to that,” Marc Short, chief of staff to U.S. Vice President Mike Pence, told reporters outside the White House.

Short added that the Trump administration planned to move forward with a legal notification of its planned 5% tariff on Mexican goods. “You should anticipate that happening today,” he said.

White House press secretary Sarah Sanders said while the meetings had gone well, “we’re still on track for tariffs on Monday.”

Trump, who has railed against what he describes as a surge of migrants across the U.S.-Mexico border, will have the final say over any deal, Pence said on Thursday. Pence also said progress had been made in the talks but gave no specifics.

Trump is returning to Washington on Friday after a week-long trip to Europe.

The U.S. president has threatened to continue raising the tariffs on Mexico after the initial levies go into effect on June. 10 if a migration deal fails to materialize.

Mexico, whose economy is heavily dependent on trade with the United States, is scrambling to avoid such a scenario.

“It’s a good sign that talks have not broken down,” Mexican President Andres Manuel Lopez Obrador told reporters in Mexico City. “There is dialogue and an agreement can be reached. I’m optimistic we can achieve that.”

Lopez Obrador, however, said it was a mistake for the United States to link migration with trade.

Mexico has prepared a list of possible retaliatory tariffs targeting U.S. products from agricultural and industrial states regarded as Trump’s electoral base, a tactic China has also used with an eye toward the president’s 2020 re-election bid.

That would put the United States in a serious trade dispute with its southern neighbor and China – two of its three top trading partners.

The United States slapped up to 25% tariffs on $200 billion in Chinese imports last month, prompting Beijing to levy its own tariffs on a revised target list of $60 billion in American goods.

Trump said on Thursday he would decide later this month whether to carry out his threat to hit Beijing with tariffs on at least $300 billion in Chinese goods.

U.S. officials officially granted Chinese exporters two more weeks to get their products into the United States before increasing tariffs on those items, according to a U.S. government notice posted online on Friday.

OPPOSITION

U.S. business groups are generally opposed to the escalation of the trade tensions, warning that the tariffs will raise costs for companies and lead to higher prices for American consumers. Trump’s fellow Republicans also are not keen on the tariffs.

Economists warn that the trade wars could damage key supply lines and lead to a further slowdown of the global economy. Even the United States, one of the more solid performers on the economic stage, would suffer.

The U.S. Labor Department reported on Friday that job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the labor market.

Global equities rose on Friday on the prospect that central banks, including the U.S. Federal Reserve, would loosen monetary policy to offset trade frictions and the threat of global recession.

Analysts warn that tariffs could spark a recession in Mexico. Credit ratings agency Fitch downgraded Mexico’s sovereign debt rating on Wednesday, citing trade tensions among other risks, while Moody’s lowered its outlook to negative.

Ahead of the 2020 U.S. presidential election, Trump is eager to show progress on his 2016 campaign pledges to take a hard line on immigration. Apprehensions at the U.S.-Mexico border hit a decade high in May.

(Reporting by Susan Heavey and Doina Chiacu in Washington, Anthony Esposito in Mexico City and Steve Holland in Shannon, Ireland; Writing by Paul Simao; Editing by Susan Thomas)

Weak U.S. employment report casts pall over economy

FILE PHOTO: Brochures are displayed for job seekers at the Construction Careers Now! hiring event in Denver, Colorado U.S. August 2, 2017. REUTERS/Rick Wilking/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the labor market, which could put pressure on the Federal Reserve to cut interest rates this year.

The broad cool-off in hiring reported by the Labor Department on Friday was even before a recent escalation in trade tensions between the United States and two of its major trading partners, China and Mexico. Analysts have warned the trade fights could undermine the economy, which will celebrate 10 years of expansion next month, the longest on record.

Adding a sting to the closely watched employment report, the economy created far fewer jobs in March and April than previously reported.

The economy thus far has been largely resilient to the trade war with China. President Donald Trump in early May slapped additional tariffs of up to 25% on $200 billion of Chinese goods, which prompted retaliation by Beijing.

Last week, Trump said he would impose a tariff on all goods from Mexico in a bid to force authorities in that country to stop immigrants from Central America from crossing the border into the United States. Talks are ongoing to prevent the duties from kicking in at 5% on June 10.

Fed Chairman Jerome Powell said on Tuesday the central bank was closely monitoring the implications of the trade tensions on the economy and would “act as appropriate to sustain the expansion.”

“Today’s report makes a cut more likely, and supports our view that the trade tensions will ultimately slow growth enough for the Fed to respond in September and December with cuts,” said Joseph Song, an economist at Bank of America Merrill Lynch in New York.

Nonfarm payrolls increased by 75,000 jobs last month, the government said in its closely watched employment report, falling below the roughly 100,000 needed per month to keep up with growth in the working-age population.

Economists polled by Reuters had forecast payrolls rising by 185,000 jobs last month. Job growth in March and April was revised down by 75,000.

In the wake of the weak report financial markets priced in a rate cut as early as July and two more later this year. U.S. Treasury prices rallied, while the dollar dropped against a basket of currencies. Stocks on Wall Street were trading higher.

May’s disappointing job growth was flagged by a report on Wednesday from payrolls processing firm ADP showing the smallest gain in private payrolls in nine years last month. Another report this week showed a drop in online ads by businesses looking for help.

Last month’s slowdown in job gains, however, probably understates the health of the labor market as measures such as weekly applications for unemployment benefits and the Institute for Supply Management’s services employment gauge have suggested underlying strength.

WORKER SHORTAGES

Some of the weakness in hiring last month could be the result of worker shortages, especially in the construction, transportation and manufacturing sectors.

Monthly wage growth remained moderate in May, with average hourly earnings increasing six cents, or 0.2% following a similar gain in April. That lowered the annual increase in wages to 3.1% from 3.2% in April. The average workweek was unchanged at 34.4 hours last month.

The moderation in wage gains, if sustained, could cast doubts on the Fed’s optimism that inflation would return to the U.S. central bank’s 2% target.

The tepid employment report added to soft data on consumer spending, business investment, manufacturing and homes sales in suggesting the economy was losing momentum in the second quarter following a temporary boost from exports, inventory accumulation and defense spending. Growth is cooling as the massive stimulus from last year’s tax cuts and spending increases fades.

The Atlanta Fed is forecasting gross domestic product rising at a 1.5% annualized rate in the second quarter. The economy grew at a 3.1% pace in the first quarter.

The unemployment rate remained near a 50-year low of 3.6% in May. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dropped two-tenths of a percentage point to 7.1% last month, the lowest since December 2000.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was unchanged at 62.8% last month.

Hiring slowed across all sectors in May. Manufacturing payrolls increased by 3,000 last month, after gaining 5,000 positions in April. The sector is struggling with an inventory overhang that has resulted in businesses placing fewer orders at factories.

Manufacturing payrolls will be watched closely for signs of any fallout from the trade tensions. Factory output has weakened and sentiment dropped to a 31-month low in May, with manufacturers worried mostly about trade.

Employers in the construction sector hired 4,000 workers in May after adding 30,000 jobs to payrolls in April. Leisure and hospitality sector payrolls increased by 26,000 jobs last month.

Professional and business services employment rose by 33,000. Transportation and warehousing payrolls fell as did retail employment. Government shed 15,000 jobs, the most since January 2018.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)

Hope grows for deal to avoid U.S. tariffs on Mexican goods

Trucks cross the borderline into the U.S. before border customs control at the World Trade Bridge, as seen from Laredo, Texas U.S., June 3, 2019. REUTERS/Carlos Jasso

By Doina Chiacu and Richard Cowan

WASHINGTON (Reuters) – Hope grew on Wednesday for a deal to avoid the United States imposing tariffs on Mexican goods in return for Mexico doing more to halt illegal immigration but President Donald Trump said he was willing to go ahead with the import duties if he is not satisfied.

Trump said he thinks Mexico wants to reach an agreement to stop a new trade war – one that analysts believe might tip its economy into a recession – while a White House trade adviser and senior Republican U.S. lawmaker predicted that Washington might not introduce the proposed tariffs.

“Mexico can stop it. They have to stop it, otherwise, we just won’t be able to do business. It’s a very simple thing. And I think they will stop it. I think they want to do something. I think they want to make a deal, and they sent their top people to try and do it,” Trump said at the start of a visit to Ireland.

Frustrated by the lack of progress on a signature issue from his 2016 election campaign, Trump unexpectedly told Mexico last week to take a harder line on curbing illegal immigration or face 5% tariffs on all its exports to the United States starting on Monday, rising to as much as 25% later in the year.

Mexican officials will seek to persuade the White House in talks hosted by U.S. Vice President Mike Pence on Wednesday that their government has done enough to stem immigration and avoid tariffs. Mexican President Andres Manuel Lopez Obrador said he was optimistic the talks can end in an agreement.

Trump said he would go ahead with the tariffs if Mexico does not do more to control migration.

Lopez Obrador has received an official list of U.S. products that could be subject to retaliatory tariffs if the duties threatened by Trump take effect, officials said in Mexico City.

Trump has faced resistance within his own Republican Party over the threatened tariffs, with many lawmakers concerned about the potential impact on cross-border trade and on U.S. businesses and consumers.

White House trade adviser Peter Navarro told CNN Trump’s threatened tariffs might not be needed.

“We believe that these tariffs may not have to go into effect precisely because we have the Mexicans’ attention” on stemming illegal immigration, Navarro said.

If the tariffs go ahead, the United States would be in a serious dispute with two of its three top trading partners. U.S. relations with China have worsened in the past month as Washington and Beijing have imposed additional tariffs on each others’ imports.

DEAL TALK

Mexican officials will offer a “long list of things” in Wednesday’s talks to avoid the duties, said Chuck Grassley, Republican chairman of the U.S. Senate Finance Committee. Grassley said a possible deal could be announced on Thursday night.

Grassley represents the farming state of Iowa, which exports pork and other agriculture products to Mexico and might be hit by Mexican retaliation in a prolonged trade dispute.

Some Republicans have told the White House not to count on the same level of support within the party that Trump received earlier this year when the president declared a national emergency to divert funds to build barriers at the border. Democrats opposed that move.

The proposed tariffs also have been criticized by the U.S. Chamber of Commerce and industry groups due to concerns about increased costs for U.S. businesses and consumers of imported Mexican goods from cars and auto parts to beer and fruit.

The number of people apprehended on the U.S.-Mexico border is at the highest monthly level in more than a decade but is still lower than at other peak periods of illegal immigration since the 1970s. U.S. authorities have said they are overwhelmed not so much by the number of migrants but by a shift in the type of person turning up at the border in recent years. Increasing numbers of Central American families and unaccompanied minors seeking asylum after fleeing criminal violence in their home countries have been turning themselves in to U.S. border agents, who have long been geared up to catch mainly single, adult Mexicans trying to cross clandestinely.

Mexican Foreign Secretary Marcelo Ebrard will attend the talks on tariffs and immigration scheduled in Washington on Wednesday afternoon. He is expected to try to show the White House that authorities are taking steps to stem the flow of migrants, with Mexico detaining double the number each day than it was a year ago.

Leftist Lopez Obrador has said he wants to persuade Washington to help tackle the causes of migration by investing in Central America to create jobs and speed up economic development.

Tariffs could slow another type of migration: the more than 1 million cows exported by Mexico across the border each year that become part of the U.S. beef supply. Tariffs on cattle crossing the border could raise costs for U.S. meat producers and processors, ranchers and economists said, particularly in border states such as New Mexico and Texas.

Pence is looking for a comprehensive suite of proposals from the visiting officials about stopping the flow of migrants from Central America, a White House official said.

“Trade and all other aspects of our relationship are critically important, but national security comes first and the White House is dead serious about moving forward with tariffs if nothing can be done to stem the flow of migrants,” the official said, speaking on condition of anonymity.

The Mexican economy will likely slip into recession this year if Trump follows through on his tariff threat, a Reuters poll of market analysts showed.

An industry source who has met with the Mexican delegation said that ideas being floated to solve the dispute are more border controls and joint security exercises on Mexico’s southern border with Guatemala, which Central American migrants pass through on their way to the United States.

(Reporting by Doina Chiacu, Alexandra Alper, Roberta Rampton, Richard Cowan and Susan Cornwell in Washington, Steve Holland in Ireland, Dave Graham,; Noe Torres and Sharay Angulo in Mexico City, and Gabriel Burin in Buenos Aires; Writing by Alistair Bell; Editing by Will Dunham)

Fed policymakers promise response if U.S. economy slows

FILE PHOTO: Federal Reserve Chairman Jerome Powell poses for photos with Fed Governor Lael Brainard (L) at the Federal Reserve Bank of Chicago, in Chicago, Illinois, U.S., June 4, 2019. REUTERS/Ann Saphir

By Howard Schneider and Ann Saphir

CHICAGO (Reuters) – Signs that the economy is losing momentum hung over a Federal Reserve summit for a second straight day as policymakers hinted they would be ready to cut interest rates if the U.S. trade war threatens a decade-long expansion.

Investors added to bets that the Fed would have to lower borrowing costs multiple times by year-end on Wednesday after a report by a payrolls processor showed private employers added 27,000 jobs in May, well below economists’ expectations and the smallest monthly gain in more than nine years.

The U.S. economy will mark 10 years of expansion in July, the longest on record. Strong job gains have been a key feature. But rising trade tensions between the United States and China have led to tit-for-tat tariffs, put a chill on U.S. businesses’ spending and exacerbated a manufacturing slowdown.

Current and threatened U.S.-China tariffs could slash global economic output by 0.5% in 2020, the International Monetary Fund warned on Wednesday as world finance leaders prepare to meet in Japan this weekend.

“We’ll be prepared to adjust policy to sustain the expansion,” Fed Governor Lael Brainard said in an interview with Yahoo Finance on the sidelines of the Fed’s Chicago summit. “The U.S. economy, generally, is in the midst of a very lengthy expansion, the U.S. consumer remains confident, but trade policy is definitely a downside risk.”

Brainard’s remarks follow a pledge on Tuesday by Fed Chairman Jerome Powell to react “as appropriate” to trade-war fallout. Other Fed officials struck a similarly cautious tone.

Since the Fed’s last rate-setting meeting, Trump slapped new 25% tariffs on $200 billion of Chinese imports and threatened new import taxes on Mexican goods unless immigration slows. Until recently officials had been largely signaling that they would keep rates at their 2.25-2.50% target range.

The trade war added urgency to what was intended to be a strategy session at the Chicago Fed focused on how the central bank can shore up its policies. Officials worry that economies risk getting stuck in a self-fulfilling cycle of low rates and low inflation that will make it harder to rebound from recessions and require increasingly forceful intervention.

To combat those risks, Fed officials are considering whether they want to temporarily welcome inflation a bit above their 2%-a-year target – and keep rates lower for longer – in the hopes that such a strategy will make attaining the central bank’s goals for maximum employment and price stability more likely.

Policymakers are also revisiting exactly what maximum employment means and whether they are doing a good enough job in how they speak to the public. No changes are expected until next year.

(Reporting by Howard Schneider and Ann Saphir; Writing and additional reporting by Trevor Hunnicutt; Editing by Andrea Ricci)