Data Shows Better, But Not Great Q2, Maybe Not Enough for Fed in June
- The May ADP Employment Report showed a gain of 173,000 private-sector jobs.
- Initial Claims for Unemployment Insurance at the end of May fell by 1,000 to hit 267,000.
- The ISM Manufacturing Index increased in May to 51.3, indicating improving conditions.
- Light Vehicle Sales for May were stable at a 17.4 million unit rate.
The May ADP Employment Report showed a near-consensus-expectation gain of 173,000 private-sector jobs for the month. This would be consistent with about 183,000 nonfarm jobs (government sector included). Because of the way that the data is collected, the May ADP numbers were not pulled down by the Verizon workers strike. The nearly seven-week strike ended Wednesday as about 40,000 workers returned to their jobs. According to Verizon, the new labor agreement calls for a 10.5 percent wage increase over four years. The official Bureau of Labor Statistics monthly employment data for May is due out Friday morning at 8:30 Eastern time. The BLS data counts workers who are actually working (as opposed to being on the payroll but not working) during the week that contains the 12th of the month. Therefore, it is expected that the Verizon workers’ strike will depress the official BLS payroll job count tomorrow. Straight arithmetic suggests that we could see a number around 143,000. However, there is some wiggle room in counting exactly which workers were off the job and when.
Initial claims for unemployment insurance fell by 1,000 for the week ending May 28 to reach 267,000, a very good number. The drop in initial claims through May alleviates some of the concern over increasing claims through April. Continuing claims for the week ending May 21 increased by 12,000 to hit 2,172,000, also a good number.
The ISM Manufacturing Index for May increased from 50.8 in April to 51.3 percent, indicating improving conditions for U.S. manufacturers. Most sub-indexes were above the break-even 50 level for the month, including new orders and production.
Light vehicles sales for May were little changed from April at a 17.4 million unit sales pace. We have now had six consecutive months of auto sales below the robust 18+ million unit sales of last September, October and November, strengthening the argument that auto sales have reached their cyclical peak.
There is enough uncertainty about the May payroll data that the Federal Reserve may not feel comfortable raising the fed funds rate on June 15 unless we see a number that clearly beats consensus expectations of about 158,000. Another factor on the Fed’s radar is the upcoming BREXIT vote in the United Kingdom on June 23. According to the current Financial Times’ poll of polls, the vote will be close, with 46 percent favoring STAY and 43 percent wanting to LEAVE. We place the odds of the next fed funds rate hike occurring on June 15 at about 25 percent. July 27 looks like a stronger bet at about 50 percent, leaving a 25 percent chance of no rate hike until September or later.
Market Reaction: U.S. stock prices opened with losses. The yield in 10-Year T-bonds is down to 1.80 percent. NYMEX crude oil is down to $48.14/barrel. Natural gas futures are down to $2.37/mmbtu.
For a PDF version of this Comerica Economic Alert click here: ADP 06-02-16.