In what inning is the economy playing?
Weekly Bond Commentary
It ain’t over till it’s over, as the wise philosopher and baseball legend Yogi Berra said about the 1973 pennant race. Much the same is true about the strength of the U.S. labor market, and economic growth in general.
In May, the economy added 339,000 new jobs, well above expectations, and the last two months’ tallies were revised higher by 93,000. That brings the year-to-date total to 1.57 million and the monthly average to 314,000. The monthly numbers have actually increased since bottoming at 217,000 in February, bucking the projected trend of late-cycle slowing. Some modest offsets to this strong headline were the rise in the unemployment rate, from 3.4% to 3.7% (derived from the household survey, compared to the payroll survey in the headline) and a modest easing in the rise in average hourly earnings, from 4.4% over the last 12 months, to 4.3%. The slowing in earnings could be explained by the increase in temporary help and leisure and hospitality jobs (typically lower earnings) and the decrease in manufacturing and information jobs (relatively higher paid). The bottom line is that these gains are simply too strong to be consistent with the Federal Reserve’s goal of 2% inflation.
Other economic data released last week point in different directions: the Conference Board consumer confidence measure eased slightly; weekly jobless claims were nearly unchanged; and manufacturing indexes eased lower (though the employment component of the ISM manufacturing index increased. Helping to lift the market’s mood was the Congressional action to raise the debt ceiling, which removed the threat of an epic self-inflicted wound.
Investors will now digest what all this means as they wait for the May Consumer Price Index report on June 13 and the Fed meeting on June 14. A rate hike may still be in the offing, despite what Fed Vice Chair Philip Jefferson said about passing on a hike. The path of Fed policy remains uncertain as the data continue to show strength.