• INDICATOR: May Private Sector Jobs, Help Wanted OnLine and Revised First Quarter GDP
• KEY DATA: Jobs: +178,000/ Want Ads: -51,000/ GDP: 2.2% (from 2.3%); After-Tax Profits: +5.9%
• IN A NUTSHELL: “The economy continues to grow moderately and it is looking more and more as if that will be the case this year.”

WHAT IT MEANS: When is good, not good enough? When you expect great things to be happening and right now, that doesn’t look to be the case. When we had a run of above-200,000 job gains, there was a belief we could sustain that pace. Well, it doesn’t look like that is going to happen. ADP estimated that the private sector payroll increase was really solid in May, though not as great as it was at the end of last year and the beginning of this. The gains were spread across almost all major sectors, with only the trade, transportation and Utilities category posting a decline. Construction continues to be the sector where firms are bringing on workers like crazy. As frequently occurs, truckers may be taking jobs in construction, which is could explain the weakness in transportation. Looking across firm size, employment increases in the small business segment moderated. The small business trade group, NFIB, has pointed out that their members are having great difficulty finding workers.

Why job gains may be slowing is open to debate, but one major reason is the low unemployment rate. There just aren’t a lot of people looking for jobs and many of those who are either don’t have the requisite skills or have issues with background and/or drug checks. Firms may be reacting to the lack of supply by recognizing they cannot actually fill the open positions. This could be the explanation for the continued decline in online want ads. The Conference Board’s measure of online job vacancies fell for the third time in the last four months. Since peaking in November 2015, the number of ads had dropped by over one million ads, or about 18%. That huge a reduction was not due to a weaker economy, so maybe the theory about not advertising for something you cannot get makes sense.

First quarter GDP was revised to show slightly slower growth than initially thought. Downward revisions to consumer spending and inventories helped create the reduced growth rate. Given how much these numbers get revised, the 0.1 percentage point cut is hardly anything to worry about. And lower inventories simply create the possibility of stronger growth in the second quarter as firms stock up for what they think is and will continue to be solid economic activity. Business investment was better than previously calculated. After-tax profits were strong, helped along by the lower tax rates.

MARKETS AND FED POLICY IMPLICATIONS: The passage of the tax cuts held out hopes that the economy would boom this year. While it is likely we will se a couple of quarters of strong growth, it remains a question whether we could sustain an extended period of 3% or more growth. Despite the tax cuts and high levels of confidence, consumers are just not shopping ‘till they drop. And while business investment is solid, it is hardly strong. Unless there is a prolonged acceleration in both of those categories, it will be hard to get to and maintain growth levels that were expected during the tax cut debate and right afterward. That said, we will get the May employment report on Friday and I think the ADP number is right on target. Given the lack of readily available, easily hired workers, it is unrealistic to think we can get job gains in excess of 200,000. If we can stay in the 150,00 to 175,000-range for the rest of the year, which is my forecast, I think we will be doing quite well. Whether investors would see it that way is a different question, but I think the Fed members would be quite satisfied with payroll increases that don’t drive down the unemployment rate too quickly.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.