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Interest rates: Weather may have contributed to delayed hike

June's jobs numbers were great, but unseasonably low May hiring has been chalked up to the weather, of all things.

Mother Nature may have played a role in Federal Reserve officials' decision last month against raising interest rates.

While Friday's jobs report soundly topped expectations, with the U.S. economy tacking on 287,000 more jobs, May's paltry gains of 38,000 were revised substantially downward, to just 11,000 jobs gained.

The Fed, when it opted last month to not raise rates, said it was looking for more consistency in key data points — like jobs — before following up on the December 2015 rate increase with the first hike for this year. But a cool start to 2016 slowed hiring in key industries, such as home building and leisure, and May's jobs report reflected it.

Janet Yellen
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Janet Yellen

Goldman Sachs analysts spotted the trend.

"During April and May, employment in the most weather-sensitive industries (construction, leisure and hospitality, and retail trade) increased by an average of just 4,000 per month, down from an average of about 113,000 in October through March," Goldman Sachs analysts wrote Thursday before the June jobs numbers came out.

"In hindsight," Goldman continued, "it appears that unseasonably warm weather boosted payroll growth in these industries above underlying trends during the winter months. These effects then unwound, with employment growth weaker than the underlying trend in April and May."

Not everyone is buying the Mother Nature explanation, however.

"I don't think weather was a factor at all," said Deutsche Bank chief U.S. economist Joe LaVorgna. "The simple truth is that May was unusually weak, and June was unusually strong. Averaging the two gives us 149,000 [jobs], which is closer to the underlying trend."

And the trend lends itself to an interest rate hike, although the market substantially cut its expectations that will happen. Friday's jobs numbers helped lift the probability of a December 2016 rate increase, but employment is only one factor that Federal Reserve Chair Janet Yellen and the Federal Open Market Committee have to consider later this month, when they convene again to discuss rates.

And it isn't clear that the Fed will get the other things it needs in order to raise rates.