April Outshines March, And We’re Not Just Talking About the Weather

By the end of the week we’ll have a good idea just how strong the economy was in April. If the bevy of first-tier reports come in as expected April will outshine March as far as economic activity, not to mention its better springtime weather. The ISM Manufacturing Index for April is due later this morning and is expected to improve on March’s print which was the highest in 38 years. Then the ISM Services Index on Wednesday is expected post the highest ever reading for that series which dates back to 1997. Oh, we should also mention the previous all-time high for this series was in March. It looks like the services sector is reopening at an astonishingly fast clip and that should bode well for the final April report of the week and that is the nonfarm payrolls reading. Given the trend in the ISM expectations you can probably guess that the April jobs report is expected to beat the strong March numbers. 978 thousand new jobs are forecast versus 916 thousand in March with the unemployment rate dipping to 5.7% from 6.0% the prior month. We still believe if the expected numbers are delivered and are met or beat again in May that the Fed may feel hard pressed to not begin the tapering discussion at its June meeting but we’ll leave that there and see where the numbers take us between now and then.


Treasuries

Treasury Curve Today Week Change
3 Month 0.00% -0.02%
6 Month 0.02% -0.01%
1 Year 0.04% -0.01%
2 Year 0.16% Unchanged
3 Year 0.34% Unchanged
5 Year 0.86% +0.02%
10 Year 1.64% +0.05%
30 Year 2.31% +0.04%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.18%
6 Mo LIBOR 0.20%
12 Mo LIBOR 0.28%
Swap Rates  
3 Year 0.485%
5 Year 0.963%
10 Year 1.645%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
May 3 ISM Manufacturing Apr 65.0 65.0 64.7
May 3 Construction Spending Mar 1.7% 1.7% -0.8%
May 4 Trade Deficit Mar -$74.3b -$74.3b -$71.1b
May 5 ADP Employment Report Apr 888k 875k 517k
May 5 ISM Services Apr 64.2 64.1 63.7
May 6 Productivity 1Q 4.2% 4.2% -4.2%
May 7 Nonfarm Payrolls Apr 970k 978k 916k
May 7 Unemployment Rate Apr 5.7% 5.7% 6.0%
Apr 30 Underemployment Rate Apr 10.0% 10.0% 10.7%

Top 5 Events for the Week

May 3— 7, 2021

1. April Employment Report—Friday

The March jobs report set the tone for the rest of the March reports and that was strong. The April median expectation is for an even better gain of 978 thousand jobs with the unemployment rate dropping from 6.0% to 5.7%. However, nearly 8.4 million remain jobless more than a year after the pandemic hit. The broader underemployment rate is still in double-digits at 10.7%. It was as low as  6.8% in December 2019 and that is what the Fed will be looking to get back to before hailing the recovery as complete.

2. April ISM Manufacturing—Monday

In addition to the employment numbers we get another big April economic report in the form of the ISM Manufacturing Index later this morning. Combined with the jobs report on Friday and the ISM Services on Wednesday these three reports will give us a good read on April activity. The ISM Manufacturing Index is expected to be a solid 65.0 versus 64.7 in March indicating the manufacturing sector is expected to remain in strong expansionary territory which has been the case since last June. The March reading was the highest print in over 38 years so the expected beat for April will be quite impressive if it comes to fruition.

3. April ISM Services—Wednesday

After the highest ISM Manufacturing Index in 38 years last week the ISM Services Index will try to impress investors with an expected print of 64.2 versus 63.7 in March. It’s been obvious from the beginning of the pandemic that service businesses, those dealing in face-to-face transactions, have suffered the most in the last year but the time is coming for the services-side to begin rivaling the manufacturing sector with solid expansionary gains given the spreading vaccination rates. The unexpected pop in the Services Index in March was the highest reading  ever for this series which dates back to 1997. If the April print comes as expected it will be a new high reading for the series. That seems to suggest the services-side of the economy is coming back strong.

 

Source: Bloomberg

 

4. March Trade Deficit—Tuesday

The trade balance numbers have largely reflected what we already know and that is the US economy is rebounding faster and with more momentum than other developed economies. Europe is still  facing lockdowns over the virus and don’t even talk about India and Brazil.  What that means is the US economy is demanding more overseas goods and services than it is exporting and that is widening the trade balance numbers. For March the trade deficit (goods and services) is expected to widen to -$74.3 billion versus -$71.1 billion in February. If we hit the expected number that will be the largest deficit recorded after February became the first month to breech the $70 billion level.

5. First Quarter Productivity—Thursday

The two primary ways to grow an economy are to add workers to the labor force and to make those workers more productive in their respective rolls. That’s why productivity is such an important metric, especially as we consider that through reduced population growth we are not likely to see the robust numbers of people added to the labor force in the future like we did in the recent past. Thus, we need to make those who are in the labor force more productive. The good news is that for the first quarter productivity is expected to increase 4.2% which will reverse the –4.2% decline in the fourth quarter. That increase in productivity is expected to drop unit labor costs by –1.0% versus a whopping 6.0% increase in the prior quarter. With the pandemic creating a whipsaw effect on the labor force these numbers will likely be volatile for several more quarters so be careful trying to read too much into any one quarter but suffice it to say that improving productivity will be key in maintaining long-run GDP potential above 2%.


 

Yield Universe

 

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Published: 05/03/21 Author: Thomas R. Fitzgerald