Monday, June 1, 2015
The stock market’s see-saw movement continues, with the major indexes on track to start today’s session in the green following the weak Friday session. On the data front, the key reading today is the ISM survey coming out a little later, while the spending numbers earlier this morning came on the weak side.
This morning’s April Personal Income & Spending report came in mixed, with income growth coming in better than expected but spending coming up short. The ‘unchanged’ April spending number is disappointing, though the upward revision to the March growth pace is welcome. On deck for release a little later is the factory sector ISM survey for May, with the index expected to modestly improve from the April level to 51.8.
The strong dollar has been a headwind for the export-centric manufacturers and it will be useful to look at trends in the exports sub-index. The Chicago PMI for May, which historically has shown a high level of correlation with the national manufacturing ISM survey, came in weaker than expected on Friday. Beyond today, the focus will be on the labor market, with the May non-farm payroll report coming out on Friday.
Q2 economic data thus far shows improvement in the economy’s growth pace relative to the first quarter, but the rebound has been less than satisfactory. We saw strong April data for housing and the labor market, but the factory sector and consumer spending data have been weak. Given this mixed economic data, we aren’t expected to get the first rate hike at this month’s Fed meeting, but this meeting will nevertheless give us clarity on the Fed’s economic outlook, as this meeting will be accompanied by the committee’s economic projections as well as the Chairwoman’s press conference.
It will be telling how the Fed sees the economy’s growth trajectory through the rest of the year given the recent mixed run. The GDP growth forecast was lowered in March to reflect the weak start to the year as a result of weather and other temporary factors. If the Fed raises or even maintains its projections this time, it will increase the odds of the September timeline for the first rate hike. A lowered projection would mean that lift-off could wait till later this year or even next year.
Sheraz Mian
Director of Research
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