The stock market should continue to be dominated by developments in the Iran war and corporate earnings this week. The latter have been beating expectations. The April Employment Report also will be a focus, particularly since there is disagreement among Fed officials whether the FOMC Statement should be biased toward an easing.
Economic growth is back to looking on the speedier side going into the Spring. Besides a spate of solid data last week, some evidence points to a strong April Employment Report this week. If the latter is the case, the market will likely agree with the three dissenters at last week's FOMC Meeting who wanted to eliminate the easing bias in the FOMC Statement. Looking ahead, a slowdown in inflation in coming months, as the effects of tariffs and oil prices end, may be what triggers a Fed rate cut -- rather than a weakening economy.
Consensus expects a moderate Employment Report. Nonfarm Payrolls are seen slowing to +73k m/m from +178k in March. Strike adjusted, the comparison would be +74k versus +146k. A steady 4.3% Unemployment Rate also is expected, as is a return to a trend 0.3% m/m increase in Average Hourly Earnings after +0.2% in March.
Some evidence argues for stronger prints. The Unemployment Claims data suggest a speedup in Payrolls from the March pace, as Continuing Claims fell by more between Survey Weeks in April than in March (see table below). This relationship has remained a more accurate predictor of speedups/slowdowns in Private Payrolls than has the ADP Estimate. The April Conference Board Consumer Confidence Survey was more upbeat about the labor market, as well. The spread between Jobs Plentiful and Jobs Hard to Get increased m/m. Rounding analysis shows that a 4.2% print for the Unemployment Rate can't be ruled out. The Rate was 4.26% in March, not far off a rounded 4.2%.
Last week's US economic data surprised on the strong side. In particular, Durable Goods Orders Excluding Transportation posted large increases of 0.9-1.2% m/m in March and February, well above the 0.6-0.7% pace in H225. In particular, Nondefense Capital Goods Orders Excluding Civilian Aircraft surged 3.3% m/m after +1.6% in February and 0.8% on average in H225. High Tech orders were a major contributor to the February-March increases. They point to further strength in business equipment investment ahead.
Most of the inflation-related data released last week were higher than desired by the Fed. The Core PCE Deflator rose 0.3% m/m, which pushed up the y/y to 3.2% from 3.0%. And, the Q126 Employment Cost Index sped back up to the prevalent 0.9% q/q pace of the previous year and a half, following a 0.7% increase in Q425. At best, it points to steady underlying inflation. However, Kevin Warsh, the nominee for Fed Chair, should be happy that the Dallas Fed Trimmed PCE Deflator rose only 0.2% m/m in March. Its y/y edged up to 2.4% from 2.3%, staying closer to the Fed's 2% target than the official Core PCE Deflator.
Private Payrolls (m/m change, 000s)
ADP Estimate First-Print BLS Latest-Print BLS Continuing Claims *
March 25 155 209 120
April 62 167 133 14
May 37 140 69 -74
Jun -33 74 -27 -57
Jul 104 83 77 18
Aug 54 38 -4 2
Sep -32 119 104 28
Oct 42 na 1 -41
Nov -32 69 41 14
Dec 41 37 48 30
Jan 26 22 172 146 94
Feb 63 -86 -129 -14
Mar 62 186 na 6
Apr na na na 31
* the inverted change in Continuing Claims between Payroll Survey Weeks, 000s
