Labor market remains resilient, equities and yields rise
Summary
It was a busy week, and while reports remain mixed with several pointing to a slowing economy, there are also reasons for optimism. The highly anticipated jobs report added to the optimism, at least on the surface. The labor market continues to appear resilient, with the unemployment rate holding steady at 4.2%. Markets reacted favorably, with the S&P 500 rising 1.54% while the 10-year Treasury yield was up 10 bps, closing at 4.51%.
Reports conflicted regarding the overall employment picture in the U.S. However, overall, the labor market appears resilient even in this period of heightened uncertainty. Tuesday’s JOLTS report showed an uptick from March and, at 7.39 million openings, beat expectations. A closer look at the report reveals a more mixed picture, with job quits down while layoffs and discharges were higher. The ADP National Employment Report released on Wednesday worried many economists with an increase of just 37,000. However, ADP data continues to have limited forecasting ability in relation to the BLS report.
Jobless claims were released at 247,000 on Thursday, representing the highest reading in seven months. It will be important to watch this closely in the coming weeks to get a better reading on where the labor markets are headed. The BLS employment report was also released Friday, showing an increase of 139,000 nonfarm payrolls and beating expectations. The unemployment rate remained at 4.2% while the labor participation rate ticked down to 62.4%. Average hourly earnings also came in higher than expectations at 0.4% month-over-month and 3.9% year-over-year. Overall, the report beat expectations and eased concerns, as many believed it would start to show the impact of tariffs and heightened uncertainty. However, given the large revisions for the prior two months (-95,000), this report may appear stronger than what is actually happening in the market. Additionally, job growth continues to be dominated by additions in just two sectors (health care and leisure/hospitality).
Other key news and releases
Although the jobs picture dominated the headlines last week, there were several other readings worth mentioning. S&P PMI readings for manufacturing and services were 52.0 and 53.7, respectively. Interestingly, the ISM manufacturing and services PMI readings showed a different trend, both declining on the month at 48.5 and 49.9, respectively. The trade deficit dropped sharply to $61.1 billion. However, this seems to be a reversal of the front-running of tariffs at the start of the year. The trend of mixed economic signals continued, which will likely be the case for the foreseeable future until the markets gain clarity on U.S. policy. Regarding the international markets, the Chinese manufacturing PMI reading of 48.3 was weaker than expected, and continues to point to a struggling economy. The Bank of Canada left rates unchanged, in line with the consensus view. In Europe, inflation came in lower than expected at 1.9%, supporting the ECB's decision to cut rates for the eighth time.
The week ahead
CPI, PPI, and consumer sentiment (prelim) will be released this week.
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