On the May Jobs Report

A substantial miss in payrolls, especially considering large downward revisions to prior months. But this result is completely out of whack with other contemporaneous labor market indicators, which indicated a beat. We don’t see this as a sign of incipient economic weakness. Even adjusting for age demographics, we calculate that the economy is about 3 million jobs from full employment. The immediate reaction of the Treasury market – a retreat to the bottom of the post-election range, where we think it will find a bottom – suggests that the Fed will not be deterred from a June rate hike. We expect that, but think it will be the last of the year unless headline economic indicators surprise substantially to the upside.