Fed/Stock Market Friendly Data This Week?

The stock market may continue to recover from last week's sell-off, as evidence of slow economic growth keeps alive the possibility of Fed rate cuts later this year.  Along with Friday's Personal Income/Consumption Report, the Employment Report and other key data this week are expected to be Fed friendly. 

Consensus expects the May Employment Report to extend the modest tone seen in April.  It sees Nonfarm Payrolls up by 180k m/m versus +175k in April.   Indeed, the Unemployment Claims data lean toward a smaller jobs increase in May than in April.  Consensus also expects the Unemployment Rate to be steady at  3.9% and Average Hourly Earnings to return to their recent trend of 0.3% m/m from the low +0.2% in April.  The y/y for AHE would be steady at 3.9%.  There is no reliable evidence for either, however.

This week's other key data are expected to describe a softening labor market and modest economic growth.  Consensus looks for the JOLTS data to show a decline in Job Openings to 8.35 Mn in April from 8.488 Mn in March.  This is a reasonable estimate since the data are based on the same sample used in constructing the Payroll data, which showed a slowdown in April.  Although consensus sees an uptick in the Mfg ISM to 49.8 in May from 49.2 in April, the estimate remains below 50.

Friday's report on April Personal Income/Consumption/PCE Deflator gives reason to believe GDP growth will remain modest in Q224.  Real Consumption in April was only 1.3% (annualized) above the Q124 average.  Assuming some m/m gains in May and June would result in 2.0-3.0% Real Consumption Growth (q/q, saar) in Q224 -- not much different from the 2.0% in Q124.  The data led the Atlanta Fed model to cut its estimate of Q224 Real GDP to 2.7% from 3.5%.

The inflation side of the report also is favorable from the Fed's perspective.  The 0.2% m/m increase in the Core PCE Deflator extended this year's period when core inflation printed below the corresponding month's increase in 2023.  This supports the view expressed by a number of Fed officials that inflation is on a downtrend.  To be sure, a slowdown in Owners' Equivalent Rent in coming months would be highly desirable for this view to be realized.