A lame May jobs report puts Fed on the spot

JOB

growth in the US was disappointingly slow in May. And that will cause a major dilemma for the Federal Reserve and anyone else who was hoping that the economy was finally — after nearly a decade of the blahs — turning a corner.

In a way it has turned a corner — into a dark alley where neither monetary nor fiscal policy is very clear.

The Labor Department announced on Friday that only 138,000 jobs were created in May. The unemployment rate, however, dipped to 4.3 percent.

But even the drop in the jobless rate wasn’t good news since it happened because a sizable number of people left the workforce and, therefore, aren’t counted by the Labor Department as unemployed.

The measure of that, the labor force participation rate, fell 0.2 percentage points, to 62.7 percent.

Wall Street had been expecting growth of 185,000 jobs. Those guesses were even rising over the last day because ADP, which conducts its own employment survey every month, recorded blockbuster job growth for May.

Even worse news was that the Labor Department said it revised job growth totals lower for March and April. March, which had already recorded a pathetic gain of 79,000 jobs, was lowered to just 50,000 jobs.

And April, which stunned the experts with a larger-than-expected gain of 211,000 was downgraded considerably, to only an ordinary 174,000.

Those downward revisions probably occurred because the last two months were the beneficiaries of generous assumptions by the Labor Department that needed to be corrected.

May was also helped by a beneficial assumption. The Labor Department added 230,000 jobs to its count for something called the Birth/ Death Model, which tries to guess the number of jobs being created by newly “born” US companies that might be missed in the official survey.

The 138,000 total in the Labor Department’s May headline figure is calculated after seasonal adjustment; the 230,000 guesstimate is be- fore seasonal adjustments. So the headline figure would have been lower without the guesstimate, but the Labor Department has never been able to tell me by how much.

That 138,000 figure is likely to be revised lower over the next two months for the same reason March and April were.

It’s that guesstimate that made me predict that the job totals for May would be even better than the experts were estimating. That’s one limb that cracked under me.

If you don’t apply seasonal adjustments to May’s numbers the job market doesn’t look quite as bad. Without seasonal adjustments there were actually 810,000 more jobs in May than there were the month before.

The headline figure — the one after seasonal adjustment — looked so disappointing because the government’s computers were expecting a much bigger gain in the raw data.

Companies typically hire in the spring for seasonal work, and they did again this year. But, for argument’s sake, let’s say it might have taken a million jobs instead of just 810,000 before seasonal adjusting (including the 230,000 Birth/Death guesstimate) for the computers to spit out the 185,000 figure that the experts were expecting.

The gain before seasonal adjustment would have had to be even bigger for my prediction to be met.

If you’ve gotten this far you are probably wondering what this all means. Well, glad you asked.

The Federal Reserve will meet June 14 to decide whether or not to raise interest rates.

Before Friday’s announcement there was near certainty that rates would be increased, despite the fact that much of the remaining data that have been released by Washington this spring are showing an economic slowdown. And that slowdown is coming off an already weak economy.

The May job figure and the revisions to previous months will undoubtedly cause the Fed to rethink a June rate hike. But whether the economic uncertainty will be enough to convince Fed Chairwoman Janet Yellen to ease off her lobbying for the hike can only be known to her.

The Fed needs to raise rates for at least two reasons. One, its extremely low rate policy over the last nine years has starved savers and caused them to pull back on spending. This has been hurting the economy.

Two, if it doesn’t raise rates soon, the Fed won’t be able to lower them if the economy weakens further. The Fed raised rates twice over the past six months. Those two quarter-point hikes could be rescinded, and the Fed would send a clear and shocking message to the financial markets but that action wouldn’t do much to boost the economy.

The May employment disappointment also creates challenges for the Trump administration. It’s getting a little late for President Trump to blame the poor job figures on hhis predecessor, so he’s going to have to start taking some responsibility.

But the poor job growth also might light a fire under Congress to pass legislation that Trump and his advisers think will lead to a better economy. We’ll see over the next few months whether the disappointing May figures and the revisions to March and April will help Trump get tax reform through a reluctant Congress.

But the fact that job growth during this spring now averages a very weak 121,000 a month might — just might — scare Washington into action.