On the May Jobs Report

A big miss with only 75,000 net payrolls is worse that it looks. Without downward revisions to the prior two months, it would have been zero. There is no evidence of job losses, only absence of job gains. At this point in the labor market, with the unemployment rate already at a low 3.6%, it takes not just growth but accelerating growth to lure the 2.3 million prime-age persons now outside the labor force back into it. But this moves the Fed closer to rate cuts in June, and surely in July. That would be a game-changer, being the first time ever that Powell will have done the right thing. We are in the last throes of processing the multiple shocks of Q4-2018. The last time May payroll growth was this weak was 2016, at the end of the “undocumented recession” that had been caused by all the same shocks. We expect an instant replay, with growth re-accelerating as it did in 2016 after the Brexit pseudo-crisis.