The Expanding Economy is Reflected by Employment Reports and ISM Data

Last Wednesday, ADP released a report stating that private payrolls rose by 296,000 in April, which was significantly higher than the expected 133,000, making it the highest monthly gain since July 2022. March’s private payrolls were slightly revised lower to 142,000 from 145,000. The leisure and hospitality industry had the most job growth with 154,000, followed by education and health services with 69,000 new jobs. The construction industry followed with 53,000 jobs added, and natural resources and mining with 52,000 new jobs. The financial sector lost 28,000 jobs and manufacturing lost 38,000.

On Thursday, the Labor Department reported that weekly unemployment claims rose to 242,000, up from the previous week’s revised 229,000, while continuing unemployment claims decreased to 1.805 million, down from the previous week’s revised 1.843 million. This drop in continuing claims was good news since it was the highest level in 16 months the previous week.

Finally, on Friday, the Labor Department released the major jobs report for April, showing that payroll jobs increased by 253,000, beating the expected 185,000 by economists. It’s worth noting that March’s payroll was revised down to 165,000 from 236,000, and February’s payroll was revised down to 248,000 from 326,000. Despite the revisions, the unemployment rate declined to 3.4% in April from 3.6% in March. Lastly, wage inflation picked up at the fastest pace in almost a year, with an increase of 0.5% (or 16 cents) to $33.36 per hour in April.

The Institute of Supply Management (ISM) manufacturing index rose to 47.1 in April, up from 46.3 in March, with the new orders component rising to 45.7 in April from March’s 44.3, while the production component was 48.9 in April, up from 47.8. Of the 16 manufacturing industries ISM surveys, only five grew in April, with the manufacturing sector remaining below 50 for the sixth straight month. However, the ISM announced on Wednesday that its non-manufacturing (service) sector rose to 51.9 in April from 51.2 in March, the fourth consecutive month the ISM service index increased after hitting 49.2 in December.

The Atlanta Fed is estimating second-quarter GDP growth at a +2.7% annual pace, more than double the 1.1% gain in the first quarter. Also, first-quarter GDP growth is expected to be revised higher since the March trade deficit declined sharply as imports decreased 0.3% to $320.4 billion, and exports surged 2.1% to $256.2 billion.

PacWest Bancorp (PACW) and Western Alliance (WAL) are regional banks that are struggling, and their stocks have plunged. Western Alliance is exploring strategic options, including selling all or part of its business. Opportunistic investors like Bill Ackman are fueling fears that regional banks will continue to falter as they are losing deposits. The banking crisis is being exasperated by an inverted yield curve, and any bad news or data could lead to a stock price decline, insured and uninsured deposits being withdrawn, and FDIC shutdown.

Treasury Secretary Janet Yellen stated that the debt ceiling needs to be lifted by June 1st since the Treasury Department’s emergency measures to circumvent the ceiling could no longer be implemented after that date. President Biden has invited Congressional leaders to meet today (May 9th) to discuss the debt ceiling, to which House Speaker McCarthy accepted. He’s seeking spending cuts before agreeing to lift the federal government’s debt ceiling.

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