Breaking up, it turns out, is hard (and expensive). Plus, tomorrow's jobs report puts labor market to the test. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

By M egan Leonhardt | Thursday, June 5

Bromance Over. Two of the most powerful men in the world have spent the past two days publicly bickering in the aftermath of what amounts to a bad breakup.

Elon Musk took to social media to criticize Republican's mega spending bill, which prompted President Donald Trump to say today that the Tesla CEO is simply “upset because we took the EV mandate,” referring to the bill’s elimination of the $7,500 credit for purchases of electric vehicles.

Trump today also said he was "very disappointed" in Musk and seemingly threatened to terminate Musk's government contracts. My colleague Anita Hamilton reports:

“Elon and I had a great relationship,” Trump told reporters in the Oval Office on Thursday, where he was meeting with German Chancellor Friedrich Merz. He added, “I don’t know if we will anymore.”

Musk didn't take the comments lying down; he had plenty more to say on his X feed this afternoon. It's anyone's guess how exactly this ends.

So far, the fallout between Trump and Musk seems to be making both men poorer. Trump Media & Technology Group stock fell 8% on the day, while Tesla was down 14.3%.

More broadly, the Dow Jones Industrial Index was down 130 points, or 0.3%. The S&P 500 ended the day down 0.5%. The Nasdaq Composite dropped 0.8%.

Musk, meanwhile, isn't the only worried about the spending levels approved by the House of Representatives. The nonpartisan Congressional Budget Office reported yesterday that the bill would add $2.4 trillion to the deficit. In a separate review, the CBO reported that President Donald Trump's tariff regime in place as of mid-May will generate enough revenue to reduce the deficit by $2.8 trillion over 10 years.

The estimate, as my colleague Matt Peterson points out, encompasses the vast majority of the recent tariffs, including the 10% universal tariffs that a court has recently questioned, though not a recent U.K. deal.

The CBO estimate of potential tariff revenues, which skews on the high end (particularly when you start to take into account that businesses and consumers are likely to develop substitution behaviors), could clear the way for congressional support, even among those who are more concerned with deficit levels.

That's a decision that the U.S. may find difficult to walk back from. There is a tipping point when it comes to the national debt that, once passed, will "weigh down the economy" — and whether that weight can be lifted by actions of monetary policy alone is a question "we should rather not want to deal with," Philadelphia Fed President Patrick Harker said in his final public speech on Thursday.

Harker, whose term is up at the end of the month, said he's very worried about the steadily rising level of national debt. He noted that the resulting economic consequences may be something the Fed's current tools can't adequately address. "Our toolkit is very limited."

Brings new meaning to the phrase caveat emptor.

DJIA: -0.25% to 42,319.74
S&P 500: -0.53% to 5,939.30
Nasdaq: -0.83% to 19,298.45

The Hot Stock: Dollar Tree +9.1%
The Biggest Loser: Brown-Forman Corporation -17.9%

Best Sector: Communication Services +0.3%
Worst Sector: Consumer Discretionary -2.4%

A Stress Test for Labor Market

The Bureau of Labor Statistics is set to release the May measure of job growth tomorrow. While there's not a ton of excitement about the latest data (inflation has, once again, taken on a greater importance), May could prove to be a pivotal stress test of the labor market amid tariff turmoil.

Economists surveyed by FactSet expect employers added 130,000 jobs in May, while Bloomberg’s consensus call is for 126,000 positions. That’s a slowdown from the previously reported 177,000 net new jobs added in April, but still a healthy level that points to relatively stable conditions.

The U.S. unemployment rate is expected to hold steady at 4.2% in May, the same rate recorded for March and April. Since May 2024, unemployment has remained within a narrow range between 4% and 4.2%.

Yet if the labor market weakens only modestly in May, the Federal Reserve won’t see an urgent need to support the economy with interest-rate cuts. The Federal Open Market Committee meets next on June 17-18.

“The Federal Reserve is navigating a narrow path,” writes Seema Shah, chief global strategist at Principal Asset Management. “While they expect the economy to soften, persistent trade uncertainty is ripe ground for monetary policy missteps, particularly when inflation is already running above target, and expected to see a tariff-induced boost in the third quarter, and economic data remains resilient.”

There have been mixed employment signals since Trump's sweeping April 2 tariff announcement. ADP’s national employment report released Wednesday was significantly weaker than expected and the number of Americans filing for unemployment benefits rose to 247,000 for the week ending May 31.

But Challenger, Gray & Christmas reports that employers announced fewer job cuts in May than in April. And the Job Openings and Labor Turnover survey data for April showed little negative change. In fact, the number of job openings rose for the first time in three months.

Additionally, the Institute for Supply Management’s measure for employment in both the manufacturing and services sectors improved in May.

All of those signals add up to the fact that tomorrow's report is unlikely to shake the Fed out of its “wait-and-see” posture, writes Lydia Boussour, senior economist at EY-Parthenon. But it should provide some evidence of if, and by how much, the labor market downshift is starting to take place.

The Calendar

The BLS releases the jobs report for May tomorrow Economists forecast an increase of 130,000 in nonfarm payrolls after a gain of 177,000 in April. The unemployment rate is expected to remain unchanged at 4.2%.

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