Last week’s reports gave us a broad look at the economy, from employment to manufacturing. This week, we will see two major releases.
Last week’s news
On Monday, the Conference Board’s consumer confidence survey 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, as it remains consistent with levels that support strong growth.
On Thursday, the personal income and spending report showed that income growth came in as expected at 0.3 percent for April. March was revised down from 0.3 percent to 0.2 percent, however, leaving total income growth marginally lower than expected. Spending growth, on the other hand, did better than expected. March was revised up from 0.4-percent growth to 0.5-percent growth, while April growth came in at 0.6 percent, above expectations of 0.4-percent growth. Given the inflation factor of 0.2 percent, these numbers signal healthy real growth rates. While some of the spending gain came from rising gas prices, control group sales grew as well, suggesting that spending growth remains healthy.
On Friday, the employment report showed job growth picked up, from 159,000 in April (downwardly revised from an initial 164,000) to 223,000 in May. This result was higher than the expected 190,000. Private payrolls provided almost all the growth, rising from 162,000 to 218,000. This is the highest level in the past two months, and it pushes the six-month average growth rate even higher. Much of the recent job growth has come from construction, manufacturing, and mining, which is a positive sign as these jobs are often high paying. Consistent with this trend, wage growth rose from 0.1 percent in April to 0.3 percent in May, while the annual rate rose from 2.6 percent to 2.7 percent. The unemployment rate dropped from 3.9 percent in April to 3.8 percent in May, better than expectations of holding steady. Overall, this report more than met expectations, suggesting the jobs market continues to be very strong.
Finally, also on Friday, the Institute for Supply Management (ISM) Manufacturing index did better than expected. It rose from 57.3 in April to 58.7 for May, above the expected 58.1. This is a diffusion index, where values above 50 indicate expansion, so this remains a very positive report. A weak dollar continues to buoy the manufacturing sector, which should continue to be additive for the economy as a whole.
Overall, last week’s economic news is positive and signals continued growth. This should give the Fed the grounds it needs to raise rates as expected in June.
What to look forward to
On Tuesday, the ISM Nonmanufacturing index is expected to rise slightly, from 56.8 in April to 57.8 for May. This is a diffusion index, where values above 50 indicate expansion. As such, the rise would mean that an already robust service sector is getting even stronger. After a slow start to the year, services now appear to be accelerating, with healthy retail sales growth and regional surveys suggesting that continues. This improvement could mean that overall economic growth in the second quarter should be higher than that of the first quarter.
On Wednesday, the international trade report should worsen slightly, with the trade deficit dropping from $49 billion in March to $50.5 billion in April. There may be some upside risk here, however, as the advance goods trade report showed that deficit had narrowed a bit. With the dollar weaker than it was a year ago, exports still have a tailwind, but recent U.S. tariff policy may have started to slow export growth. In any event, trade should be roughly neutral for the economy as a whole in the second quarter, with any contribution being small.
Have a great week!