U.S. economy poised for 2Q rebound?

The U.S. jobs market continued to rebound from the swoon in March. May non-farm payrolls grew by 280,000 jobs and prior months were revised higher by 32,000 jobs. While the unemployment rate rose to 5.5%, a positive for sentiment could be observed in the rise in labor force participation to 62.9%. Average hourly earnings grew 0.3% in May, bringing year-over-year growth to 2.3%, the highest level in five years.

The Institute for Supply Management (ISM) purchasing manager data also supports our conclusion of an economy recovering from the first quarter swoon, with the manufacturing index moving higher in May and the non-manufacturing index moderating from very strong levels.

This week’s retail sales report for May will be key in estimating the level of consumer health. The April personal income report showed consumers continued to save much of their savings from weaker energy prices, rather than expand spending in other parts of the economy. Over the next quarter, we expect consumer spending to improve due primarily to low energy prices.

Manufacturing data outside the United States, in general, eased the pace of growth. Purchasing manager indexes (PMI) for Europe, Japan, and the United Kingdom continue to indicate solid, but not accelerating growth in manufacturing activity. Data for emerging market nations was more mixed, with Brazil continuing to experience contraction while growth remains slow in China, India, and Russia. Monetary stimulus across many of these economies should help stabilize growth trends, but is unlikely to cause significant economic acceleration.

A positive for eurozone health was also observed in the May flash estimate for consumer price inflation, which rose 0.3% year over year and 0.9%, excluding food and energy. These data may indicate European Central Bank (ECB) quantitative easing (QE) appears to have been effective in helping raise economic activity and dispelling deflationary pressure.

For more information, please go to: https://reserve.usbank.com/insights/market-economic-update.

Robert L. Haworth, CFA, is a senior investment strategist and Darrell Behnke is the Madison market leader for the Private Client Reserve of U.S. Bank.

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