CARY, N.C. -

With the May employment report from the Bureau of Labor Statistics landing with “a thud,” according to the reaction by Comerica Bank chief economist Robert Dye, the auto finance industry likely will have to wait until later this summer at the earliest for the Federal Reserve to make a move regarding interest rates.

To recap, the BLS reported only 38,000 net new payroll jobs were added to the U.S. economy in May. Dye called the figure “well below expectations.”

He continued in Comerica’s latest Economist Update that “this could turn out to be an anomalous report, and it is reasonable to expect some bounce back in the June labor data, due out July 8. However, there is enough corroboration outside the June employment report to take the miss seriously.”

Dye first mentioned that job growth in the ADP employment report has been trending down.

“We have been expecting a similar downtrend in the official BLS data,” he said. “We could be seeing the start of a downtrend with the last two months of payroll data, when April saw a gain of just 123,000 jobs, followed by May’s very weak 38,000.

Furthermore, Dye pointed out that productivity growth has been very weak as recent soft productivity growth has been an important debate topic amongst economists. University of Chicago economist Robert Gordon recently published a book focusing on productivity.

Comerica indicated U.S. productivity growth was just 0.6 percent in the first quarter versus the same period a year earlier.

Also, Dye noted that both the May ISM Manufacturing Index and the May ISM Non-Manufacturing Index showed employment sub-indexes below 50, indicating a contraction in employment for the month.

“Timing is everything. The weak May employment report, released just 10 days before the upcoming Federal Open Market Committee meeting, over June 14 and 15, will likely keep an interest rate increase on hold,” Dye said.

“We still think that a fed funds rate increase for July 27 is on the table. But the economic data will need to be solid in front of that meeting,” he continued.

What the Fed is saying

Earlier this week, Federal Reserve chair Janet Yellen discussed her view of current U.S. economic conditions during a speech at the World Affairs Council of Philadelphia. Yellen acknowledged the latest employment report left the Fed with a difficult decision.

“So the overall labor market situation has been quite positive,” said Yellen, who mentioned that the economy added 2.7 million jobs last year for an average of 230,000 a month.

“In that context, this past Friday’s labor market report was disappointing,” she continued. “An encouraging aspect of the report, however, was that average hourly earnings for all employees in the nonfarm private sector increased 2½ percent over the past 12 months — a bit faster than in recent years and a welcome indication that wage growth may finally be picking up.”

Yellen’s prepared remarks — available online on the Fed’s website — touched on a host of other economic matters such as inflation and GDP, with the Fed taking an overall stable stance on what might be ahead. She closed by reiterating that the Fed is considering all angles before making decisions regarding interest rates.

“My colleagues and I will make our policy decisions based on what incoming information implies for the economic outlook and the risks to that outlook,” Yellen said. “What is certain is that monetary policy is not on a preset course, and that the committee will respond to new data and reassess risks so as to best achieve our goals.”

Another Fed commentary about its latest report on household economic well-being can be viewed in the window at the top of this page or by going here.

Impact on auto finance

During a webinar hosted by the Consumer Bankers Association ahead of Yellen’s remarks and the latest employment update, Moody’s Analytics senior director Cristian deRitis reiterated how much employment and interest rates play a role in vehicle sales and the possibility for originations.

“The labor market is very essential to the auto sales and auto credit industry. If the labor market is not performing or if jobs are not being added to the economy, that will impact our outlook. We anticipate some wage growth,” deRitis said.

And with regard to an uptick in interest rates, deRitis is expecting the Fed to be “moving at a relatively slow pace, allowing time for the market and for individuals to adjust to those rates.

“But there is a risk that if interest rates were to rise very sharply, that would certainly put a damper on vehicle sales,” he added.