It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines…
Fed Interest Rate Decision
On Wednesday, the Federal Open Market Committee (FOMC) left key interest rates unchanged, but also signaled that a June key interest rate hike was likely. The FOMC also acknowledged that inflation was firming up. Furthermore, the FOMC said that both overall and core inflation “have moved close to 2%,” which makes a June rate hike more likely. Overall, the FOMC statement signaled that the Fed intends to raise key interest rates slowly, but surely as market rates rise. So moving forward, only an abrupt decline in Treasury yields could postpone more Fed rate increases later this year.
ISM Manufacturing and Service Index
On Tuesday, the Institute of Supply Management (ISM) announced that its manufacturing index slipped to 57.3 in April, down from 59.3 in March. This was significantly below economists’ consensus estimate of 58.7. This is the lowest reading for the ISM manufacturing index in the past nine months. However, since any reading over 50 signals an expansion, the manufacturing sector remains healthy. The components that weighed on the April ISM manufacturing index were the production and employment components. This was due largely to rising materials costs. Overall, the manufacturing sector remains very healthy and it will be interesting if higher commodity prices are passed on to consumers.
On Thursday, the ISM non-manufacturing service index slipped to 56.8 in April, down from 58.8 in March. This was below economists’ consensus estimate of 58. The ISM service index has declined for three straight months, but because the reading was over 50, the service sector is still expanding, but at a slightly slower pace. The primary reasons for the deceleration in the ISM service index were the employment and supplier components. Overall, the service sector also remains healthy.
The Labor Department announced that 164,000 payroll jobs were created in April. This was below economists’ consensus forecast of 195,000. The February and March payrolls were revised up by a cumulative 30,000 to 324,000 (down from 326,000) and 135,000 (up from 103,000), respectively. The unemployment rate declined to 3.9% from 4.1% in March, due largely to a shrinking workforce. Average hourly earnings rose by 0.15% to $26.84 per hour, so wage inflation slowed to a 2.6% annual pace. Interestingly, labor force participation declined to 62.8% for the second straight monthly decline.
Finally, on Wednesday, ADP reported that 204,000 private payroll jobs were created in April. This represents the fifth straight month of at least 200,000 private payroll jobs created. Overall, the April payroll data was soft enough to cause the Fed to hesitate a bit, especially considering wage inflation. So, a further key interest rate hike beyond June may now be less likely.
That’s all I have for you this week. I’ll be in touch again next week with the latest ratings out of Portfolio Grader.
Until next week,