After a weak March, then a strong April, U.S. hiring activity again fell lower than expected in May. Today’s Labor Department monthly report shows that non-farm payrolls only increased by 138,000, well below the 182,000 consensus economist projection. Furthermore, the estimates for March and April were revised downward by a combined 66,000—March was cut from 79,000 to 50,000 and April from 211,000 to 174,000. Wage growth was a little soft at an annualized rate of 2.5 percent and the headline unemployment rate declined further to 4.3 percent, though it appears that’s largely due to a decline in the labor participation rate to 62.7 percent.

The May numbers were a bit weak, but they also weren’t disastrous enough to cause a reassessment of the state of the economy. The market reacted to the soft job numbers positively, because it implies that the Fed will likely continue to stick to a gradual tightening plan as inflation remains in check for the moment and the job market still grows but isn’t overheated. For the longer term, we are still concerned about the persistently low GDP and productivity growth. We had hoped that President Trump would deliver on his promises of tax reforms and infrastructure investment, but it doesn’t appear such economic boosts will occur anytime soon.

At the current pace of tepid economic growth, the Fed probably would raise the fed funds rate by another quarter point during the summer. However, beyond that, without further pickup in inflation or economic growth, it may be difficult to justify another rate hike, especially with Fed officials having expressed some reservation about economic softness during the early-May Fed meeting. Coming into 2017, forecasts from members of the Federal Open Market Committee had implied three quarter-point rate increases this year. Through May, we have seen one so far.

Congratulations to Mick McGuire, founder of Marcato Asset Management, our reference fund for AAR Corp (NYSE: AIR). Immersed in a proxy fight with the Buffalo Wild Wings (NYSE: BWLD), and having nominated himself and three allies for election to the board, McGuire prevailed today at Buffalo’s shareholder meeting. According to Marcato’s press release, three of his four nominees, including himself, were elected to the board.

McGuire has criticized Buffalo for an inept strategy and wants the company to refranchise most of its stores in order to improve profit margins. He also wants long-time CEO Sally Smith out. His wish was granted today as Smith withdrew her nomination to the board and announced her retirement, to be effective before the end of the year.

Although BWLD isn’t an official member of the Brain Trust Profits portfolio because we have reservations about structural headwinds facing the chicken-wing chain and about whether an aggressive refranchising strategy may create disruptions—McGuire wants 90 percent of Buffalo’s stores to be franchises, and only 10 percent company-operated (the current split is about 50-50)—we have long followed Marcato and have observed the proxy fight from a distance.

We will continue to closely follow BWLD and could add it to our portfolio in the future.        

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