Succinct Summation of Week’s Events:
Positives:
1) Job growth in May was well above expected at 280k (estimate of 226k); prior two months saw a combined upward revision of 32k. Unemployment ticked up one tenth to 5.5% because of a 397k increase in the labor force relative to the household survey gain of 272k. Participation rate was up one tenth to 62.9%.
2) Wages rose by .3% m/o/m and 2.3% y/o/y. That y/o/y gain matches the most since 2009. The payroll 6 month average is 236k vs the 260k average in 2014 as the May gain made up from only modest job gains in January, March and April. US Initial jobless claims totaled 276k, 2k less than expected but last week was revised up by 2k to 284k.
3) Autodata said 17.79mm cars/trucks were sold on a SAAR basis in May, well more than expectations of 17.3mm. It’s the best pace since 2005.
4) The ISM manufacturing index for May rose to 52.8 from 51.5, above estimates of 52.0. It is off the lowest level since May ‘13. ISM said, “Comments from the panel carry a positive tone in terms of an improving economy, increasing demand, and improving flow of goods through the West Coast ports.”
5) Post-port strike, April trade deficit was $40.9b, about $3b narrower than expected. Exports rose for a 2nd straight month after 4 months of declines. Imports fell by 3.3% after a sharp 6.5% rise in March which followed port strike related declines in January and February. This will lift Q2 GDP estimates by a few tenths all else equal.
6) PCE inflation figure for April was flat and up just .1% at the core rate, both one tenth less than expected. The y/o/y gain for the headline number was up .1% and up 1.2% at the core rate.
7) Personal income rose .4% m/o/m in April, one tenth more than expected. Private sector wage and salaries were up by .2% m/o/m and a pretty good 4.6% y/o/y.
8) Eurozone services PMI for May was 53.8, better than the initial print of 53.3 but down from 54.1 in April and vs 54.2 in March. Unemployment rate in April for the region fell to 11.1%, a level last seen in March ’12.
9) The final look at Eurozone May manufacturing PMI was 52.2 vs 52 in April and 52.2 in March and matches the best since May.
10) The European Markit Retail PMI rose back above 50 for the first time since June 2014 at 51.4 vs 49.5 in April.
Negatives:
1) May ISM services index fell to 55.7 from 57.8. It’s below the estimate of 57 and is at the lowest level since April 2014.
2) MBA said refi applications fell 11.5% w/o/w to the lowest level in 5 months as the recent uptick in mortgage rates has had an immediate impact on the desire to refi. Refi’s are now down 1.2% y/o/y. Mortgage applications to buy a home fell 3% w/o/w to the lowest since late March but are still up 14.5% y/o/y.
3) Global bond bubble has some more air come out in a messy week. Investors are saying no mas to taking an enormous amount of capital risk for very little reward in fixed income as central bank interest rate suppression has reached its limit. The US Treasury market in particular is calling out the Fed. Are they listening?
4) Personal spending in April was flat m/o/m, two tenths light vs expectations.
5) April factory orders report saw Core capital spending (non defense capital goods ex aircraft) revised down to a drop of .3% vs the initial print of up 1%. The y/o/y drop is now 2.6% vs down .6% first reported.
6) Q1 productivity was revised down to an annualized decline of 3.1% from -1.9% and with this, unit labor costs rose 6.7% from 5% initially reported for Q1. On a y/o/y basis, productivity in Q1 was up just .3%.
7) Euro zone CPI for May rose .3% y/o/y headline, one tenth more than expected and the most since November. The core rate (ex food, energy and alcohol) was higher by .9% y/o/y, two tenths above the estimate and that is the quickest pace since August and was driven by a 1.3% rise in services inflation that matches the fastest pace since May 2014. The ECB would put this in the positive category but I believe higher inflation would stall growth.
Peter Boockvar, Chief Market Analyst
The Lindsey Group LLC
Main: 703-621-1170
peter -at- thelindseygroup.com
