Not rolling over
In a surprising turn of events, the Institute for Supply Chain Management’s manufacturing index increased to 56.1 for May, compared to expectation for a decrease in the index. Anything above 50 indicates a growth environment, but we’ve been inching toward that 50 number over the last few months as conditions have gotten tougher for American manufacturers.
Moral of the story: Manufacturing in the US managed to improve despite everything working against it. Supply chains still feel broken and, in some cases, it’s getting worse. But, the key takeaway for me is that fears seem overdone – while things are bound to slow a bit before they start getting better, nothing is falling off a cliff.
Unsurprisingly, consumer confidence fell slightly in May driven by the perception of a slowing labor market (we’ve seen headline after headline of layoffs or hiring freezes across the tech industry, for example) and their expectations for purchasing cars, homes, major appliances, etc. all cooled slightly.
Moral of the story: Inflation remains at the top of everyone’s minds and consumers are shifting from spending their dollars on big-ticket purchases, like they did during the pandemic, to services. Consumers aren’t confident in the economic conditions in the coming months, which is likely to result in higher savings and lower consumer spending. Given consumer spending accounts for the majority of our economic growth, you could see why economic reports like this are giving investors cause for concern.
But there are jobs for everyone
The jobs report for May came up stronger than expected with 390k new jobs created for the month, compared to expectations for closer to 328k new jobs. This increase in employment is the slowest we’ve seen in the last 13 months, but we’ve also dug ourselves out of the hole we fell into during the depths of the pandemic. Unemployment is still sitting at 3.6%, close to the pre-COVID lows, as employers continue to hire despite all the other chaos we’re seeing in the broader economy. Despite the strong labor market, wages aren’t keeping pace with inflation as wages have risen only 5.2% over the last year while inflation is running higher than 8%.
Moral of the story: If the job market continues to be really strong, it means continued pressures on wages, which feeds into the cost pressures that companies are facing – that then flows through to their customers with higher prices. But a strong labor market results in consumers feeling good about their financial situation, which means that consumer spending should see some support. Basically, investors are currently very picky about how strong we want the labor market to be – too strong is potentially bad news but too weak is also bad news. Can’t win.