Chief Economist Scott Brown discusses the latest market data.
Fed Chair Powell testified that inflation is expected to drop back to the long-term 2% goal as transitory supply effects abate – nothing new, but that may have left stock market participants with less anxiety than the week before.
Real GDP rose at a 6.4% annual rate in the third estimate for 1Q21, same as in both the advance and second estimates (annual benchmark revisions are due next month). Other data pointed to continued strength in 2Q21, but some moderation in the pace of growth heading into the second half of the year. Consumer spending was flat in May, down 0.4% adjusting for inflation, but that followed large gains in March (+5.0%) and April (+0.9%). Shipments of nondefense capital goods ex-aircraft rose 0.9% in May, tracking at more than a 9% annual rate in 2Q21. New and existing home sales both fell in May, reflecting supply constraints and affordability issues. The University of Michigan’s consumer sentiment survey showed reduced inflation expectations, as respondents believe that the recent increase in inflation will be transitory. The report also suggested that consumers may maintain a higher level of precautionary funds and not spend out of the buildup in household savings.
Next week, fresh figures for June arrive ahead of a three-day holiday weekend. The focus will likely be on the Employment Report. Nonfarm payrolls are expected to post a strong gain (around 550,000 ± 200,000), but seasonal adjustment (the end of the school year) could be an issue. Note that prior to seasonal adjustment (and before the pandemic), we would normally lose around 900,000 education jobs and add over 1.5 million non-education jobs each June.