The May jobs report brought bad news today as it was announced that far fewer jobs were added to the United States economy than expected. Economists had estimated that there would be over 160,000 extra jobs made available to the labor force in this period, an amount that would surely lead to an interest rate hike. However, the actual figure was closer to 38,000, a disappointing amount to say the least, and one that delivered a huge blow to the chances of a June hike.

Prior to this announcement, the FedWatch tool, operated by the CME Group, stated that there was a 21 percent chance of a June hike. After this report, that number was amended to just 4%, making this all but a foregone conclusion. This tool basis its estimation on the price of 30-day fed funds futures, which are typically a great indictor of future policy changes.

Anything above 50% would indicate that there is at least a 50/50 chance of such a hike, and at 21% there was still a 1 in 5 possibility. However, at just 4% it means there is less than a 1 in 20 chance of such a hike being implemented, according to this software. To see this tool for yourself, and to make your own judgments regarding its predictions, click here.

This report also looks at the potential for hikes in future months, and as with the June hike, these all experienced a drop following this announcement. The odds of this happening in July, for example, were at 58%, but these plummeted to just 35% after the jobs report, while future months also suffered:

  • September, was 66%; now 47%
  • November, was 68%; now 50%
  • December, was 79%; now 67%

On June 14th to June 15th, policymakers, working on behalf of the Federal Reserve, will meet to discuss this interest rate hike, and in the unlikely event that they do decide to increase it, it will be only the second time in the last ten years.

The May Jobs Report

To help you understand what these figures mean, we can take a closer look at the May jobs report. This report highlighted some shocking and damning statistics, including all of the following:

  • Not since September 2010 has the United States economy created so few jobs.
  • More than half a million people departed the labor force in May 2016.
  • March and April generated close to 60,000 fewer jobs than previously thought.

There was a reduction in the unemployment rate, which dropped to 4.7%, after reaching 5% in April. However, this has to be taken with a pinch of salt, because as explained by financial expert Curt Long, while this rate fell, it did so, “For the wrong reason, as labor-force participation declined for the second consecutive month.”

The truth is that there are very few positives to take away from this. Quincy Krosby, who works for Prudential Financial and studies market strategy, put it best when it said, “Not even a magician can take this number and make it sound good.”