The dramatically weak May employment report from the government may be a sign productivity is starting to turn the corner, the former chairman of President Barack Obama's Council of Economic Advisers said Friday.
"As I've been saying for months, if productivity goes back to even resembling normal, the jobs numbers are going to deteriorate quite a lot," Austan Goolsbee told CNBC's "Squawk Box."
Goolsbee, a University of Chicago professor, called productivity "the wildcard" that may shed light on the terrible job growth number that the U.S. economy created just 38,000 nonfarm payrolls last month. "If you have high productivity growth you don't need to hire anybody to grow."
Economists had expected 164,000 new jobs. The report said the unemployment rate fell to 4.7 percent, a greater-than-expected decline that can be partly explained by a drop in the rate of participation in the labor market. An average hourly earnings gain of 0.2 percent matched estimates.
Goolsbee said the Federal Reserve should hold off on raising interest rates at its June 14-15 meeting. "We just got a very, very low jobs number. They can't hike in June. Imagine if they did and the economy got worse, people would be like, 'how dumb were you.'"
"The Fed has never commenced a rate-increase regime when the [economic] growth rate was below 2.5 percent and inflation was below its 2 percent target," Goolsbee added.
The Fed had said in its April minutes that policymakers would likely hike rates if the economic data were to hold up. Central bankers raised the cost of borrowing in December for the first time in more than nine years.
Doug Holtz-Eakin, former chief economist on President George W. Bush's Council of Economic Advisers, said he would hike rates if he were making the decisions at the Fed. "[But] they will not," argued Holtz-Eakin, president of the American Action Forum think tank.
Kristina Hooper, U.S. investment strategist at Allianz Global Investors, said the Fed should hike rates by "at least 12.5 basis points." Policymakers need some "dry powder," meaning room to cut rates, "if something bad were to happen."