Jobs report could be key to Fed rate increase
A jam-packed week of economic news features a jobs report that could tip the scales on whether the Federal Reserve raises interest rates at a mid-June meeting after standing pat since December. Also, look for reports on consumer confidence and spending, and surveys of the manufacturing and service sectors.
On Tuesday, the Commerce Department releases data on personal income and spending that should show financially healthy consumers finally loosening the purse strings. Americans are benefiting from solid job and income growth, reduced household debt and low, if rising, gas prices. Consumption was decent in the first quarter but tempered by a slowdown in auto sales and warm weather that curbed heating demand. Meanwhile, April retail sales recorded the largest gain in two years, and so economists expect Commerce to report a robust 0.6% jump in spending.
Consumer sentiment, which can foreshadow future spending, likewise has been buoyed by rising stock prices, steady job growth and a tightening labor market that’s pushing up wages. The favorable landscape should more than offset any drag from rising gas prices, PNC Financial Group says. Economists expect the Conference Board to report a rise in its consumer confidence index to a healthy 96.2 in May.
The manufacturing sector has been wallowing on the negative side of the economy’s ledger, though it has stabilized somewhat recently. Factories have throttled back in response to the oil-patch downturn and a weak global economy and strong dollar, which have hammered exports. This year, oil prices have risen and the dollar has weakened but those developments have yet to drive a rebound for manufacturers. Economists expect the Institute for Supply Management to report Wednesday that its index of manufacturing activity dipped in May but remained in expansion territory, if just barely.
Friday’s employment report is expected to reveal the labor market bounced back in May after job gains slowed in April. The Verizon workers’ strike probably removed about 40,000 union workers from payrolls, says Lewis Alexander, chief U.S. economist of Nomura. As a result, economists expect the Labor Department to report 170,000 payroll gains in May, up from 160,000 the previous month but below the recent 200,000-plus average. Such a showing, along with a bump in wage growth, could give Fed policymakers ammunition for a June rate hike, though many economists believe the Fed will wait until July or September.