Why the jobs report could be better than everyone expects

Can I predict the employment report correctly for the second straight month? We’ll know Friday.

By most measures, the US economy looks as though it’s weakening. But tomorrow’s employment report could show the opposite.

In fact, I think it will — but not because the economy is strong.

Sorry that I’m writing in riddles. What the economy is really doing and what the numbers say it is doing aren’t always the same thing. That’s what I am getting at.

Last month, I said job growth for April would be much stronger than the “experts” on Wall Street were predicting. And, indeed, when the Labor Department announced April growth, it blew past Wall Street predictions.

I was right. They were wrong.

Tomorrow is the next chance for Wall Street to get it right — or for me to get it wrong.

Wall Street’s consensus prediction is for growth of about 185,000 jobs in May. That will be far fewer than the 263,000 new positions created in April.

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The unemployment rate is expected to stay at 3.6 percent. More important, hourly wages are expected to inch up to 0.3 percent growth in May — from 0.2 percent growth in April.

Wage growth is what has been lagging even as job growth has been strong.

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Why did Wall Street get job growth wrong for April? For the same reason it might happen again when Friday’s numbers are announced — the experts aren’t factoring in all the statistical tricks that the Labor Department uses.

Once again, I’ll tell you about the little-known birth/death model. That’s a guesstimate the Labor Department uses each month to add or subtract jobs that it believes are being created, or killed, by companies that are too small for the government to capture in its monthly surveys.

In April, this guesstimate added an enormous 275,000 jobs to the monthly count. This month, the guesstimate should add fewer — but still a healthy number of around 215,000 jobs.

The guesstimate doesn’t account for all the job growth, because the numbers I just gave you are before seasonal adjustment. The headline number you will see Friday is after seasonal adjustment.

But there’s no doubt that the statistical guesstimate makes the job figures look better during the spring months.

I’m a little worried about my prediction for Friday. ADP and Moody’s Analytics said on Thursday that job growth among private companies collapsed in April to a nine-year low.

That figure doesn’t include government jobs, but still, it shows a trend that has me worried about my prediction.

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I’ll go out on a limb and predict that Friday’s…

But I’ll stick with my guess — better than expected job growth — and keep my fingers crossed.

If the May job figure does come in strong, it creates a predicament for the Federal Reserve, which seems to be of two minds when it comes to where interest rates should go from here.

One camp seems to think that borrowing costs should go lower because so many economic indicators are getting softer. The other camp thinks rates should stay where they are. And that group’s opinion could be bolstered by another strong jobs report.

The financial markets, on the other hand, are counting on rates going lower. In fact, they are already ahead of the Fed on that front and may force Fed chief Jerome Powell’s hand.

Strong employment growth in May will certainly cause more confusion in the markets.

Stay tuned. It’s going to be fun.