Lousy May Jobs Report Makes Fed Increase Unlikely This Year

George Yacik - INO.com Contributor - Fed & Interest Rates

Is the Federal Reserve, which has been signaling a rate increase in the “coming months,” really going to do so after last week’s lousy May jobs number?

And if the jobs economy, which has been one of the few bright spots in the economy lately – that is, of course, if you ignore the 94 million or so adults not working – is as soft as the report indicates, will the Fed be able to raise rates at all this year?

To my way of thinking, the Fed has only until September if it’s going to raise rates this year. After that, we’ll be in the final two months of the presidential election campaign, and there is no way the Fed is going to make any moves then, especially if such a move were to jeopardize the chances of Janet Yellen’s party’s nominee.

Following the awful May jobs report, I think we can pretty much dismiss the idea of a rate increase at the June meeting, now less than two weeks away. July remains a possibility, but there will have to be an awful lot of improvement in the economy by then, and there’s not a lot of time between now and then. There is no meeting in August, so that leaves the September 20-21 meeting as the only real possibility, and even then the odds in favor of a move less than two months before the election are pretty small.

Just how bad was the May report?

The Labor Department said nonfarm payrolls rose by just 38,000 in May, the lowest number in nearly six years – since September 2010 – and less than a quarter of the 158,000 the Street had been expecting. The most pessimistic individual analyst’s estimate was 110,000, so the actual number barely reached a third of that number.

To make matters worse, the figures for March and April were downwardly revised by 59,000 jobs, which lowered the average for the past three months to 116,000, a little more than half of the monthly average of 219,000 new jobs over the previous 12 months.

While the official (that is, totally bogus) unemployment rate fell to 4.7% from 5.0%, that was purely the result of people leaving – or more accurately, pushed out of – the workforce, as the labor participation rate fell to 62.6%.

While the jobs number took just about everybody by surprise, it didn’t come completely out of left field. Just an hour and a half later, the Institute for Supply Management released its non-manufacturing index for May, which covers about two-thirds of the economy. Not only did the ISM’s headline number drop by nearly three points to 52.9, the lowest level in more than two years and well below even the most pessimistic forecast. But, more importantly, perhaps, its employment index fell 3.3 points to 49.7, pushing it into contraction territory.

In other words, both the Labor and ISM reports are signaling the same story. Recession, anyone?

Which leaves me a bit puzzled about how the Fed didn’t see this train wreck coming. Was it not privy to these same numbers, and others besides, even weeks ago? Or are they subject to the news embargo like the rest of us? That just doesn’t seem possible.

Yet for about the past month or so, the Fed’s monetary policy committee and numerous individual Fed members, from Yellen on down, have been telling the markets, pretty unambiguously, that an interest rate increase is coming soon, likely before the end of the summer.

The minutes of the Fed’s April 26-27 meeting, released last month, said an interest rate increase at its June 14-15 meeting “would be appropriate” if the economy picks up in the second quarter. Yellen followed that up about a week later saying a rate increase was likely “probably in the coming months.”

Of course, these comments were all conditioned on continued improvement in the economy and the employment market specifically, but it’s hard to believe the Fed would go so far out of its way to prepare the markets for a rate increase unless they knew with a fair degree of certainty that the economy would indeed cooperate.

And yet apparently they didn’t. We’re all aware that economic forecasting, like predicting the weather only a day or two out, is far from an exact science. But how could it be this bad? If the Fed can’t get this right, how can we expect it to direct U.S. monetary policy?

Just a few days before the release of the jobs report, President Obama was patting himself on the back on how great his economy has been, telling a crowd in Elkhart, Indiana, that Americans were better off under his administration “by almost every economic measure.” I guess he didn’t get an early look at the May jobs report, either.

Obama was there to boost his party’s prospects in November. Now those prospects look even dimmer. It’s hard to see the Yellen Fed making them even dimmer by raising rates between now and then.

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George Yacik
INO.com Contributor - Fed & Interest Rates

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

8 thoughts on “Lousy May Jobs Report Makes Fed Increase Unlikely This Year

  1. Eventually lies can't hide the truth, this administration is probably the worst of all time.

  2. There will be no hikes in year 2016. Whenever Yeller mentions hike is coming, either someone from inside or the Big Banks will manipulate the data/number to give FED excuse not to do anything. What Yeller is doing right now is to entertain their purpose and ensure their existence. Wake up people, the US FED is more corrupted and rigged than our enemy, China. This is fantasy land!!! Enjoy while you can.

  3. Thanks George.
    That damn Fed. Sheesh, why we put up with that capricious monster I'll never know.
    But who knows? That spastic beast should be put down, out of our misery. And now this:
    Reuters - 7 hours ago
    PHILADELPHIA Federal Reserve Chair Janet Yellen said on Monday that interest rate hikes are likely on the way because "positive economic forces have outweighed the negative" for the United States now that risks from earlier this year have diminished.

    1. To quote a favorite line from a Richard Pryor movie, "The b_t_h has done gone berserk!"

  4. It seems like the Federal Reserve will lose what little credibility it has left if it doesn't at least raise interests rates by a quarter of a percent. But I'm not sure any of our so called markets these days will even be affected.

  5. To think the fed does not have data early is silly. Add in how fake all data is should have seen this coming? The reason we failed in 2008 was rate change on arm loans when that happen was the pivot. There is no way the fed can raise rates as this all would just come crashing down again. It is just time as most see the game coming part again and hey lose faith in central banks world wide.

    Just my thoughts.

  6. That jobs report should indeed put the nail in the coffin of any interest rate hike in 2016. Had it been a decent report, the argument could be made for one, but now it's obvious that any interest rate hike this year would not be just jumping the gun, but insane.

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