June 5, 2020
Chief Economist Scott Brown discusses the latest market data.
Stock market participants remained optimistic about the economy, further encouraged by a surprisingly strong employment report for May. Bond yields moved above their recent range.
The May Employment Report was sharply at odds with other labor market indicators. Nonfarm payrolls rose by 2.5 million (median forecast: -8.0 million), with private-sector jobs up 3.1 million. Payrolls fell by 19.5 million between February and May. In contrast, the number of people receiving unemployment benefits was nearly 30 million in mid-May, up a little more than 11 million from mid-April (corresponding to the timing of the payroll surveys). The unemployment rate fell to 13.3% (median forecast: 19.8%), from 14.7% in April (the May figure was understated by about three percentage points by a classification problem). While the May figures appear suspect, strong job gains were expected to show up in June, reflecting improvement in economic activity as states reopen. The black/African American unemployment rate edged up to 16.8% (from 16.7%).
Other economic figures showed improvement or less weakness. The ISM Manufacturing Index rose to 43.1 in May, vs. 41.5 in April, with continued sharp declines in new orders, production and employment. The ISM Non-Manufacturing Index rose to 45.4. Business activity, new orders and employment continued to contract, but not as sharply as in April. Unit motor vehicle sales rebounded to a 12.2 million seasonally adjusted annual rate, up from 8.7 million in April, but still down 30% from a year ago.
Next week, the Fed is expected to keep short-term interest rates low. Fed asset purchases are unlimited, but the pace has slowed. After punting in March, Fed officials are expected to issue forecasts of growth, unemployment and inflation. Fed Chair Powell will explain the situation in his post-meeting press conference.
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