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.

The last time the LMCI indicated the same sort of durable and lasting trend was from 1987 through 1991. Starting around the Crash of ’87 and continuing through the building S&L crisis, the labor market moved variably lower over a period of just more than three years. The ultimate end of that slowing was, of course, the recession of 1990-91, a fate sealed with very unexpected events in the Middle East (a sudden sharp rise in oil prices as an Iraqi dictator invaded his neighbor and caused a short-term oil spike during a period where the US and global economy was so weakened as to be unable to withstand it).

The nature of that period (financial instability) is what draws our attention and therefore this comparison to it. It doesn’t mean we should expect a similar result (recession) in the months ahead, only that it isn’t necessarily surprising to find extended economic slowing and weakness when overall uncertainty prevails to such a high degree.

That the global economy experienced what surely looks like a near-recession at the start of 2016 is evidence of the severity of the downturn. But we also have to consider the idea of what the lack acceleration out of it might actually mean, and none of those scenarios involve the words “strong” or even “strengthening.” This analysis is entirely independent from what the FOMC might or might not do this month or in the coming months (as explained in detail last week). Instead, it is only through mainstream narrative that they become linked.

The lack of acceleration is instead the theme of 2017, a contrary result than what “reflation” might be expecting or at the very least hoping for. The labor market, in general, is a lagging indication but the Fed’s LMCI was put together including several forward-looking measurements. The only meaningful interpretation is that seven months after turning positive the statistic doesn’t suggest the labor market actually turned positive. That is the only analysis that is actually consistent with the payroll reports or a summary of other economic accounts.