Today’s employment report for May isn’t good. It’s not even close to being good. But it’s not surprising. After ADP reported on Wednesday that its estimate of private payrolls suffered a big slowdown in growth last month, today’s disappointing news from the Labor Department was expected, as we discussed two days ago. The question now is deciding if the slump in job creation is temporary or something with legs. That’s not going to be easy until we see more numbers over the next few weeks. Meantime, erring on the side of caution about the macro outlook is the only game in town. It’s too soon to throw in the towel on expecting the recovery to muddle through, but make no mistake: We’re looking at the biggest threat to growth in, well, since this time last year. Yes, the prospect of another summer slowdown has returned.

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The Treasury market’s inflation forecast has been falling for nearly two months, sending a warning sign that the economy is headed for a slowdown. The change for the worse in this indicator first caught our attention several weeks ago and the risk is even higher now. The basic problem is that the a sharp fall in inflation expectations is a sign of trouble for an economy that’s only been growing modestly, and unevenly. As a result, economic updates in recent days seem to confirm that disinflation/deflationary forces are on the rise again.

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Initial jobless claims dropped last week by a modest 6,000 to a seasonally adjusted total of 422,000. That’s a sign that the labor market isn’t poised to deteriorate further, but the still-elevated pace of new applications for unemployment benefits also suggests that job growth is still struggling. In one respect, we dodged a bullet–for now. But let’s be clear: nothing less than robust job growth will suffice to offset what looks to be a new summer slowdown in the offing. It’s still too early to talk about a new recession, but the risk is inching higher. That threat remains small, but the change in trend isn’t encouraging.

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Scary signs for jobs
CNNMoney | June 1
All eyes in the financial world are on the government’s monthly labor report due Friday, hoping to see that the job market continued to grow in May. But after several indicators pointed to a recent slowdown in job growth, the glass is now looking closer to empty than full. “You could call it a soft patch, but it’s the second or third soft patch we’ve seen in the recovery,” said Paul Ashworth, chief U.S. economist with Capital Economics. “For a recovery that is less than two years old, it’s troubling to say the least.”

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Here we go again: Another batch of economic updates and another round of disappointment. That sums up the latest numbers released this morning via the ADP Employment Report and the ISM Manufacturing Index. In both cases, the trend has taken a turn for the worse. The bad news arrives on the heels of yesterday’s discouraging trio of economic reports. Stepping back and considering the latest updates suggests that we’ve entered a nasty pattern for macro news.

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Bonds in the U.S. and emerging markets, along with REITs posted gains last month while stocks and commodities retreated. That’s no surprise, given the renewed worries for economic growth. Meanwhile, our proprietary Global Market Index (GMI), a passively weighted mix of all the major asset classes, shed 1.1% in May.

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A trio of economic reports released this morning bring fresh clues about the outlook for the macro trend, but all three offer only more reason to wonder if the economy can maintain positive momentum in the months ahead.

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Home Prices in U.S. Probably Kept Falling as Housing Absent From Recovery
Bloomberg | May 31
U.S. home prices probably slumped in March by the most in 16 months, indicating residential real estate will keep weighing on the expansion, economists said before a report today… “Weak demand and a deluge of discounted sales of distressed properties have weighed significantly on prices,” said Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “It’s hard to be enthusiastic about the economy’s prospects as long as house prices are falling.” A backlog of foreclosures poised to reach the market means prices may stay depressed, dissuading builders from taking on new-home construction projects.

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● I Am John Galt: Today’s Heroic Innovators Building the World and the Villainous Parasites Destroying It
Summary via publisher, Wiley
Inspired by Ayn Rand’s characters in Atlas Shrugged and The Fountainhead, penetrating profiles of both the innovators who move our world forward and those who seek to destroy the achievement of others. John Galt, the fictional character from Ayn Rand’s bestselling novel, Atlas Shrugged, has come to embody the individualist capitalist who acts in his own enlightened self interest, and in doing so lifts the world around him. Some of today’s most successful CEOs, journalists, sports figures, actors, and thinkers have led their lives according to Galt’s (i.e., Rand’s) philosophy. Now, in I Am John Galt, these inspiring stories are gathered with the keen insight and analysis of well-known market commentator Donald Luskin and business writer Andrew Greta. Filled with exclusive interviews, profiles, and analyses of leading financial, business, and artistic stars who have based their lives, and careers, on the philosophy of the perennially popular Ayn Rand, this book both inspires and enlightens. On the other side are Rand’s arch villains the power-seekers, parasites, and lunatics who would destroy that which the creators and builders make. Who are today’s anti-heroes, fighting the creativity of the innovators?

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Disposable personal income and personal consumption spending rose last month, the U.S. Bureau of Economic Analysis reports. But after adjusting for inflation, the nominal rise fades to zero for income and posts only the smallest of increases for consumption. As such, today’s income and spending report is likely to give bears and bulls something to chew on.

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