US job growth fell hard last month, the Labor Department reports. Private-sector payrolls increased by a thin 25,000 in May, the smallest monthly gain in five years. Even adding the estimated loss of 30,000-plus workers due to the Verizon strike last month still leaves payrolls in a dire state via the latest monthly profile. It could be noise, of course–it’s always hazardous to make assumptions about the economy from one data point. Nonetheless, the sight of the year-over-year growth rate in private employment dipping below the 2% mark for the first time in two years suggests that the recent deceleration in the labor market recovery is picking up speed.

“Boy, this is ugly,” economist Diane Swonk tells The New York Times. “The losses were deeper and more broad-based than we expected, and with the downward revision to previous months, it puts the Fed back on pause.”


The optimistic spin is that the next update on payrolls will benefit from the return of formerly striking Verizon workers. But the expected cure from mended labor relations may be less than satisfying since the strike only represents 40,000 workers at most. As a result, today’s update still looks unusually weak no matter how you slice the numbers.

“The slowdown in job growth looks pretty pervasive across industries,” advisesMichael Feroli, chief U.S. economist at JPMorgan Chase, via Bloomberg. “It raises some questions about the momentum of growth and about the outlook. The easy thing to say is, this takes June off the table for a Fed hike. To get to July, we’re going to need a pretty nice rebound in the data.”

Note, however, that yesterday’s ADP national estimate of private payrolls looks dramatically brighter. The firm reported that US companies added 173,000 jobs last month. The chasm between this estimate and the government’s official data is surprisingly wide. Clearly, one number is wrong—big time. Deciding which data set is misleading us will take a month or two.

Note, however, that initial jobless claims continue to print at levels that are close to a multi-decade low, which implies that job growth will roll on at a healthy pace. But as I discussed yesterday, there are cracks in this seemingly upbeat picture via the raw year-over-year trend in claims. New filings for unemployment benefits increased 6.6% last week vs. the year-earlier level. The annual rise is the fourth time in the past five weeks that claims headed higher vs. year-ago figures. If claims continue to rise on a year-over-year basis, this leading indicator will signal trouble for the business cycle in a more convincing degree.

Meantime, if it turns out that the government’s sharply weaker estimate is confirmed in the next update for June, it’ll probably be time for a major attitude adjustment for the macro outlook.