Last week saw several important economic data releases, with the weekly initial jobless claims report and the April personal income and spending reports serving as highlights. Initial unemployment claims fell for the fourth week in a row, providing an encouraging sign for the labor market recovery. This week, which is short due to the holiday, will be relatively quiet, with updates focusing on business confidence and employment.
Last Week’s News
On Tuesday, the April new home sales report was released. The pace of new home sales fell by 5.9 percent during the month, below economist estimates for a 7 percent drop. The slowdown in sales in April partially offset the 7.4 percent increase in sales we saw in March. New home sales are a smaller and often more volatile portion of total home sales compared with existing home sales. Despite the monthly volatility, the pace of new home sales was up by 48 percent on a year-over-year basis. It should be noted, however, that some of this growth is due to comparisons with data from last April, when new home sales fell during the initial lockdowns. New home sales have been supported over the course of the past year by low mortgage rates, high levels of home buyer demand, and limited inventory of homes available for sale. Looking forward, rising prices and low levels of supply may serve as a headwind for significant faster levels of new home sales growth. Still, if sales remain near current levels, they would represent a notable increase compared with pre-pandemic data.
Tuesday also saw the release of the Conference Board Consumer Confidence Index for May. This widely followed measure of consumer confidence fell modestly, dropping from a downwardly revised 117.5 in April to 117.2 in May. Forecasts were for an increase to 118.8. Despite the decline, the index sits near its pandemic-era high, which signals continued healthy levels of consumer sentiment. We’ve seen a noted improvement in consumer confidence this year, compared with 2020’s year-end result of 87.1. This improvement has been driven by continued progress in combatting the pandemic and the federal stimulus payments hitting bank accounts this year. High levels of consumer confidence have historically supported consumer spending growth, so the optimism in May is a good sign for consumer spending figures. Given the continued efforts to vaccinate as many people as possible and the associated reopening efforts across the country, confidence is expected to remain high as we head into the summer, which should support additional consumer spending growth.
On Thursday, the preliminary estimate for the April durable goods orders report was released. Orders of durable goods fell by more than expected, dropping by 1.3 percent against forecasts for a 0.8 percent increase. This surprising decline was driven by a slowdown in volatile transportation orders, which was largely due to a global semiconductor shortage that caused auto orders to fall by 6.2 percent during the month. Core durable goods orders, which strip out the impact of volatile transportation orders, increased by 1 percent in April, against expectations for a 0.7 percent increase. Core durable goods orders are often viewed as a proxy for business investment. Accordingly, this result is an encouraging sign that businesses continued to spend during the month despite the decline in headline orders. The rise in core durable goods orders was especially impressive given that core orders have already rebounded past pre-pandemic levels.
Thursday also saw the release of the initial jobless claims report for the week ending May 22. The number of initial weekly layoffs fell by more than expected, dropping from 444,000 to 406,000. Forecasts were for a more modest decline to 425,000. This result marked a new pandemic-era low for weekly initial jobless claims, as well as four straight weeks with declining initial claims. This year, we’ve made notable progress in getting initial weekly claims down, following the 2021 high of 904,000 initial claims set early in January. The improvement has largely been driven by progress in containing the spread of the pandemic and the associated easing of state and local restrictions. Ultimately, this report was an encouraging sign regarding continued progress for the labor market rebound, as well as the overall economic recovery.
On Friday, the personal income and personal spending reports for April were released. Personal spending increased by 0.5 percent during the month, following a stimulus-boosted 4.2 percent rise in March. This result, which was in line with economist estimates, marks two consecutive months with personal spending growth. Given the fact that consumer spending accounts for the majority of economic activity in the country, this healthy result is an encouraging sign that consumers are continuing to power the recovery. Personal income has been very volatile on a month-to-month basis throughout the pandemic, as shifting federal stimulus and unemployment payments have caused sharp changes in income levels. April saw personal income fall by 13.1 percent, which was slightly less than the 14.2 percent drop forecasted by economists. Personal income increased by a record 21.1 percent in March. So, given the fading impact from the federal stimulus payments distributed the month before, the decline in April is understandable.
What to Look Forward To
We started the week with Tuesday’s release of the ISM Manufacturing index for May. This widely followed measure of manufacturer confidence increased by more than expected. It rose from 60.7 in April to 61.2 in May, against forecasts for a more modest increase to 61. Driven in large part by new order growth due to strong consumer demand, this result brought the index to its second-highest level on record. This is a diffusion index, where values above 50 indicate expansion. The improvement in May is a positive signal that manufacturing output has continued, despite headwinds created by rising prices and supply chain constraints. Manufacturer confidence has increased notably since hitting a lockdown-induced low of 41.7 in April 2020. Overall, this encouraging report showed a continued manufacturing recovery driven by sky-high levels of demand as reopening efforts accelerated.
On Thursday, we’ll see the release of the initial jobless claims report for the week ending May 29. Economists expect to see the number of initial unemployment claims drop from 425,000 to 395,000. If estimates prove accurate, this report would mark the fifth week in a row in which initial claims have declined. It would also set another pandemic-era low for initial claims. Although claims can be volatile on a week-to-week basis, the continued improvement over the past two months has been very encouraging. With that said, however, the number of weekly initial claims remains higher than normal. The progress we’ve made so far this year is promising, but the current level of weekly layoffs indicates that the labor market continues to face stress. Accordingly, this weekly report will continue to be closely monitored.
Thursday will also see the release of the ISM Services index for May. As was the case with manufacturer confidence, economists expect to see service sector sentiment improve during the month. Forecasts are calling for the index to rise from 62.7 in April to 63 in May. If estimates hold, the index would sit at the second-highest level on record, trailing only the 63.7 reading for March 2021. This is another diffusion index, where values above 50 indicate expansion, so a reading above 50 would mark 12 straight months with service sector growth. Confidence for this sector has rebounded strongly following the weather- and pandemic-related slump in February. Continued readings near current levels would indicate very high service sector confidence on a historical basis. Given the continued reopening efforts and progress in combatting the pandemic, service sector confidence is expected to remain high as we head into the summer months.
We’ll finish the week with Friday’s release of the employment report for May. Economists expect to see 650,000 jobs added during the month. This result would be a solid step up from the relatively disappointing 266,000 jobs added in April, but below the 770,000 jobs added in March. April’s slowdown in the pace of hiring was largely attributed to a shortage of available workers, as evidenced by the high level of job openings across the country. While potential labor shortages may serve as a headwind for a return to full employment, continued progress on mass vaccinations and state reopenings should support job growth in the months ahead. The April employment report demonstrated the continued positive impact from reopening efforts, with the hard-hit leisure and hospitality sector seeing the largest job gains. This trend is expected to continue as reopening efforts are accelerated as we head into summer. The underlying data is set to improve compared with the numbers from April. Economists expect the unemployment rate to fall from 6.1 percent to 5.9 percent in May. Ultimately, if estimates hold, this report would be an encouraging sign for the labor market recovery, as well as acceleration of the overall economic recovery.
That’s it for this week—thanks for reading and stay safe!