On Wednesday, the Fed released the minutes of the last meeting of its Open Market Committee, which sets interest rates. The statement issued after the meeting was notable for pronouncing that the inflation target was “symmetric” around 2 percent, suggesting the Fed might be willing to let inflation run above that level for some time. The actual minutes indicated that Fed members did not see that as a serious risk, however, as inflation appeared to be contained. A June rate hike, per the minutes, still appears likely, with one or two more increases this year. This strategy is somewhat more dovish than had been feared. Markets were also looking for color on how the Fed views the current trade policy disputes. But the minutes didn’t deliver, simply noting that, according to Fed members, a wide range of outcomes was possible.
Also on Wednesday, the new home sales report showed a decline from 694,000 in March to 662,000 in April. On Thursday, the existing home sales report also showed a decline, from 5.6 million in March to 5.46 million in April. In both cases, the results were below expectations. With inventories low, lack of supply is no doubt a cause of the drop, but rising mortgage rates are also likely slowing demand. This is a neutral indicator, although housing will be worth watching for future signs of slowing.
Finally, on Friday, the durable goods orders report showed that headline orders for business equipment also did worse than expected. They dropped from growth of 2.6 percent to a decline of 1.7 percent, on a substantial drop in aircraft orders. This headline index is notoriously volatile, for just that reason. The core orders index, which excludes transportation and is a much better economic indicator, did the reverse. It improved from a decline of 0.1 percent to a gain of 0.9 percent, which is well above expectations. These numbers indicate strong growth, as supported by strong regional surveys and manufacturing activity, as well as continued capital investment, which has been a concern for this recovery. This positive surprise suggests that business investment is continuing to rise and will continue to support growth.
On Monday, the Conference Board’s survey of consumer confidence pulled back slightly. It went from 128.7 in April to 128 for May, which was in line with expectations. This remains a very high level, and the small pullback is not a concern.
On Thursday, the personal income and spending report is expected to show that income growth remained steady at 0.3 percent for April (the same as in March), while spending growth also remained steady at 0.4 percent. Given the inflation factor of 0.2 percent, these numbers would signal reasonable real growth rates. While some of the spending gain will come from rising gas prices, control group sales are expected to rise as well, suggesting that spending growth remains healthy.
On Friday, the employment report is expected to show job growth picked up from 164,000 in April to 190,000 in May. If so, this would be the highest level in the past two months, pushing the six-month average growth rate even higher. Much of the recent job growth has come from construction, manufacturing, and mining—a positive sign as these jobs are often high paying. Wage growth is expected to tick up from 0.1 percent in April to 0.3 percent in May, while the annual rate is expected to rise from 2.6 percent to 2.7 percent. The unemployment rate is expected to hold steady at 3.9 percent. Overall, if the report meets expectations, it would suggest the jobs market continues to be very strong and provide grounds for the Fed to raise rates in June.
Finally, also on Friday, the Institute for Supply Management (ISM) Manufacturing index is expected to rise from 57.3 to 58.1. This is a diffusion index, where values above 50 indicate expansion. As such, this would be a very positive report. Regional surveys have been strong, and there may be some upside potential here.
Overall, if the reports come in as expected, they would signal accelerating growth and confirm that the first-quarter slowdown continues to subside.
Have a great week!