Jobs Analysis: So where's the U.S. market now?

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There are certain months when you should close your eyes, click your heels together three times, and think to yourself: the jobs report has a margin of error of 100,000 jobs, the jobs report has a margin of error of 100,000 jobs, the jobs report has a margin of error of 100,000 jobs.

This is one of those months. The good news was bad and the bad news was worse, so our only consolation is that this might be a blip. Consider this: the unemployment rate ticked down from 5.0 to 4.7 percent for the rotten reason that there are almost half a million fewer people looking for work, the economy only added 38,000 jobs in May when it was expected to add 155,000, it turned out that 59,000 fewer jobs were created in March and April than we had previously thought, and 468,000 more people who wanted full-time jobs could only find part-time work. Ugly all around.

And it doesn't get a lot less so even if you take a longer view of things. Indeed, the economy has gone from adding a three-month average of 282,000 jobs a month at the end of last year to just 116,000 as of Friday. That is the lowest it's been since July 2012.

So on a scale of 1 to Lehman, how worried should we be? Well, as 538's Ben Casselman points out, that depends on which of the three stories behind this apparent slowdown is the correct one. Here they are in ascending order of badness.

All noise

• This is just statistical noise. First off, the Verizon strike subtracted 35,000 jobs from the official numbers that haven't actually been subtracted from the economy. So the 38,000 jobs the Bureau of Labor Statistics says we added was really something like 73,000. And second, as we already mentioned, there's always a margin of error of 100,000 jobs with these reports. That means there's a real chance the economy didn't slow down quite as much as it appears to have. It might have added around 90,000 or 100,000 jobs instead.

But even if this were true, we shouldn't exactly be bringing out the bubbly. After all, we'd still only be adding half as many jobs as we were six months ago. And, again, that's operating under the optimistic assumption that there will indeed be big, positive revisions. A more realistic one, though, is that there won't. Revisions tend to be good when the economy is, and bad when it is too, so it shouldn't be a surprise that they just turned negative when economic growth has been so anemic, nor would it be if they continued to be so.

• The economy is slowing down since there aren't many people left who still want jobs. It's taken a lot longer than anyone wanted, but the metronomic 180,000 to 200,000 jobs the economy has added almost every month for the last 5 years might have finally given a job to most of the people who want one. In that case, we would expect the recovery to gear down for the happy reason that, like the little engine that could, it had made it over the mountain to the land of full employment. In other words, we aren't creating as many jobs as before because we don't need to.

But we can poke holes in this story too. If companies really are running out of unemployed people to hire, then they should be trying to hire away people who already have jobs by offering big raises. The problem there, though, is that wages aren't rising as fast as they have been. Not to mention the fact that there are still a lot of people who can only find part-time work and not the full-time jobs they want. That suggests there's plenty of slack left in the labor market.

The r-word

• It's hard to see where a recession would come from today, but we can't completely rule it out when job growth has slowed so much and the labor force is shrinking. That last part in particular is a big reversal from just a few months ago when it looked like the recovery was starting to suck people in off the sidelines. Maybe it's just that Boomers are retiring even more en masse, or maybe it's that our jobs engine is sputtering. We just can't say for sure right now.

The moral of the story, then, is that there is none. Not every blip becomes a bust, but every bust looks like a blip at the beginning. Sometimes the only way to tell the difference is to wait. Just ask the Federal Reserve. It almost certainly won't raise rates in June like it had hoped to, and may not in July either now that there's so much uncertainty.


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