Weak Jobs Report Could Spark Market Rally

June 2, 2006 — -- You might think today's lackluster jobs report wouldn't leave much for the Bush administration to crow about. But low numbers aren't standing in the way of a little positive spin.

The tiny addition of 75,000 new jobs took a back seat to the one-tenth of a percent drop in the nation's unemployment rate (now at 4.6 percent) as outgoing Treasury Secretary John Snow took to the airwaves in a number of live television interviews after this mornings report. Snow told interviewers that the overall tone of the jobs market is strong and emphasized the fact that unemployment hasn't been this low in five years.

What he didn't say is that this slight drop in unemployment is well within the survey's margin of error and was characterized by the Bureau of Labor Statistics commissioner as "essentially unchanged."

House Speaker Dennis Hastert joined in the economic pep club chorus with an e-mailed statement to reporters.

"The American economy continues to create jobs that are putting paychecks in the pockets of American workers," read the Hastert statement. "We have seen strong job growth recently, with the U.S. economy creating more than 2 million jobs in the last year."

But if you check Hastert's math with the official figures from the Bureau of Labor Statistics, you'll see he's a bit off.

You'd need a 13-month year to get to more than 2 million new jobs. From June 2005 to May 2006 (the generally accepted 12-month year) the economy has added just 1.896 million jobs.

But bad math is probably just confusing the issue, as is the administration's fear of acknowledging a slowing trend in hiring.

There's a bigger point here. It might actually be a good thing.

For almost two years the Federal Reserve has been raising interest rates. At first, it was to reset the fed funds rate -- what banks pay for overnight loans -- to neutral after it shifted rates to a historic low of 1 percent after the 9/11 attacks.

Recently, though, the Fed has been raising rates to slow growth and defuse inflationary pressures. The low May jobs numbers are a good sign that the central bank's fear of prices rising out of control might be unfounded.