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Look forward to June 3, 2019 week: It’s about employment, mostly

A look forward at the June 3 week puts the focus on data related to the labor market – the May Employment Situation at 8:30 ET on Friday, the ADP National Employment Report for May at 8:30 ET on Wednesday, the Challenger report on layoff intentions at 7:30 ET on Thursday, and the weekly numbers on initial jobless claims for the week ended June 1 at 8:30 ET on Thursday.

The rapid succession of reports should all lean in the same direction. Payroll growth is at least solid, and stronger than might be expected given the maturity of the expansion and uncertainties on the near horizon. Manufacturing and service businesses are laying off workers where necessary such as the ongoing contraction in the brick-and-mortar retail sector but most are holding on to those they have even where activity has slipped in the expectation that some of the slowing will be temporary. As such, the unemployment rate should remain consistent with a tight labor market.

Regional data for manufacturing points to another soft month for the ISM Manufacturing Index in May when it is released at 10:00 ET on Monday. On net, the ISM equivalent indexes from the various District Banks that have a survey of manufacturing point to a reading that should not be much above or below the 52.8 of April. The factory sector is feeling concerned about the impacts of fresh tariffs on Chinese goods and restrictions on exports of technology. Some activity was pulled forward into January through March out of caution that trade negotiations would stall or fail, and as a result April felt a pinch that could hold into May.

Service sector surveys from the District Banks suggest that the ISM Non-Manufacturing Index for May at 10:00 ET on Wednesday will slow a bit with more modest activity. The various surveys are hard to correlate with the ISM number. The two surveys with the best correlation point to sharply less favorable conditions, but this is in contrast to others that suggest moderate conditions. I would look for another decrease in the national index from the 55.5 in April. Services shouldn’t see quite the same set of problems facing manufacturing in regard to tariffs on goods, but it could impact costs and supply chains here as well.

The Fed’s Beige Book at 14:00 ET on Wednesday will cover the period from early April to mid-May. Anecdotal evidence about conditions across the 12 Districts is likely to be a little more downbeat. Nonetheless I would anticipate the general tone to remain one of tempered growth. If manufacturing and service activity is down, it is still expanding. There are green shoots for the residential real estate sector and consumer spending is starting to improve for retail. Agriculture may be hurting due to earlier flooding and disrupted growing seasons.  Commentary related to the labor market, wages and salaries, and price stability should line up with the quandary facing Fed policymakers – a hot labor market and tepid inflation.

Other economic data in the week probably won’t grab market attention in more than passing.

Construction spending at 10:00 ET on Monday is the last of the April data related to the housing market. In addition to some numbers about new residential construction, more will be known about spending on home renovation and repair, and commercial and government building.

Sales of motor vehicles in May will be reported as available early in the week. Sales softened in April. It remains to be seen if consumers’ appetite for new passenger cars and light trucks improved. In any case, higher gasoline prices may push some consumers to consider a car in preference to less fuel efficient vehicles. It will also be interesting to see if higher tariffs have impeded the import of motor vehicles and if limited supplies have meant that domestic units are more likely to be purchased.

The communications blackout period around the June 18-19 FOMC meeting will go into effect at midnight on Saturday, June 8 and last through midnight on Thursday, June 20. Although the coming week will be the last opportunity to comment about the outlook for monetary policy, that isn’t what will predominate public remarks. The long-awaited Conference on Monetary Policy Strategy, Tools, and Communication Practices on Tuesday and Wednesday, June 4-5 will beheld at the Chicago Fed. Fed policymakers have been speaking about the issues this conference will focus on. Do not expect any immediate decisions about of these discussions, but it should influence how the FOMC ultimately decides to approach monetary policy and how to communicate that policy.

 

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