Conventional wisdom right now says that the Fed is going to raise rates because the economy and by extension labor market are still improving. The word “improving” is subjective, so to further justify that sentiment, the CPI is back over 2% and the PCE Deflator just might join it in February. By the light of these major contributions there is every reason to be happy with the state of economic affairs. Even the New York Times agreed earlier this month:

Federal Reserve Chair Janet Yellen signaled Friday that the Fed will likely resume raising interest rates later this month to reflect a strengthening job market and inflation edging toward the central bank’s 2 percent target.

We know that calculated inflation rates are about to be 2%, but there are serious questions as to whether they will remain above or even near that level once the base effects of oil prices wear off (with oil at $48, they will do so several months earlier than when it was at $54). That leaves only the “strengthening job market”, a rather interesting proposition because for almost every month over the past three years the word “strong” was used anyway. In the media the unemployment rate rules.

Even the latest payroll reports continue to suggest slowing, which is remarkable because the slowing started almost three years ago. Such a durable trend is not unique in our economic history, but it isn’t a scenario that you find often. The release of the Fed’s very own LMCI for January 2017 continues to indicate the same precarious shape of the labor market rather than how it is so often described. It may be qualified as “strengthening” but only in comparison to what were clearly negative conditions just about a year ago (yet if you go back and read media reports about those months, all were classified as “strong” with the exception of the report for May 2016).

The January 2017 estimate for the LMCI was +1.3, slightly better than the (revised) +0.6 in December, but slightly less than the +1.5 for November 2016. There isn’t truly any meaningful difference between them, or the -2.6 which is now estimated for that rough patch in May 2016. The LMCI did turn positive for the month of June, but after more than six months there is still no clear sign of acceleration beyond the sign change. The CPI has the “benefit” of oil price comparisons, and the labor market data shows the real economy as it is without them.