AMERICA’s labour market has become a reliable source of comfort when other economic indicators dismay. When growth slowed to just 0.8% in the first quarter of the year, economists were mostly unperturbed, because payrolls were growing by over 150,000 workers a month. Wage growth was picking up. Even labour-force participation was rising, after a long period of decline.

So the news on June 3rd that the economy created a mere 38,000 new jobs in May—the lowest total since 2010—was a nasty shock. Three days later Janet Yellen, the Fed’s chairman, hinted that she no longer favours raising interest rates this summer. This abrupt change of direction followed weeks of warnings from Fed officials that a rate rise was coming, perhaps as soon as the conclusion of the Fed’s next meeting on June 15th. That now looks all but impossible.

The consensus forecast was for about 160,000 new jobs in May. Even accounting for 35,000 striking workers at Verizon, a telecoms firm, the shortfall was substantial (though the estimate, which has a wide margin of error, may yet be revised up). A labour-market slowdown that had seemed gentle now looks pronounced: between March and May, the economy created on average 116,000 jobs per month, compared with 222,000 in the year to February. The fizzing labour market had been tempting Americans who had given up on work back into the...Continue reading