May CPI and Aftermath of the Jobs Report

With the Fed going into radio silence ahead of the FOMC meeting next week, that leaves investors more time to pick over the May jobs report and any implications that can be made.  While it missed expectations, it also was better than the mediocre April numbers. That being said, while the unemployment rate went down three-tenths part of that was due to a slight shrinkage in the labor force as evidenced by the Labor Force Participation Rate ticking down a tenth to 61.6%. It was 63.3% prior to the pandemic and the Fed will want to see it trending back there before declaring we are back to full employment. The three-month average in job gains is 541 thousand which implies nearly 14 months, or mid-to-late 2022 before all those jobs are recouped. That long runway for continued monetary accommodation goes a long way in explaining Treasuries rallying on the heels of the jobs report.  The highlight of the week for new information will be the May CPI release and the monthly gains, while expected to be elevated on a historical basis, will likely be off from the steamy prints in April. Overall CPI is expected up 0.4% for the month and 4.7% for the year. Core CPI is also expected up 0.4% and 3.4% for the year.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.02% +0.01%
6 Month 0.03% +0.01%
1 Year 0.04% Unchanged
2 Year 0.15% +0.01%
3 Year 0.31% +0.01%
5 Year 0.80% Unchanged
10 Year 1.58% -0.02%
30 Year 2.26% -0.02%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.13%
6 Mo LIBOR 0.16%
12 Mo LIBOR 0.25%
Swap Rates  
3 Year 0.427%
5 Year 0.879%
10 Year 1.554%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Jun 8 NFIB Small Business Optimism May 100.5 100.9 99.8
Jun 8 Trade Balance Apr -$68.8b -$68.5b -$74.4b
Jun 8 JOLTS Job Openings Apr NA NA 8.123k
Jun 10 CPI (MoM) May 0.4% 0.4% 0.8%
Jun 10 Core CPI (MoM) May 0.4% 0.4% 0.9%
Jun 10 CPI (YoY) May 4.7% 4.7% 4.2%
Jun 10 Core CPI (YoY) May 3.4% 3.4% 3.0%
Jun 11 U. of Mich. Sentiment Jun 84.0 84.2 82.9
Jun 11 U. of Mich. Expectations Jun 78.4 78.4 78.8

Top 5 Events for the Week

June 7—11, 2021

1.  Aftermath of Jobs Report—All Week

With the Fed going into radio silence ahead of the FOMC meeting next week, that leaves investors more time to pick over the May jobs report and any implications that can be made.  While it missed expectations, it also was better than the mediocre April numbers. That being said, while the unemployment rate went down three-tenths, part of that was due to a slight shrinkage in the labor force as evidenced by the Labor Force Participation Rate ticking down a tenth to 61.6%. It was 63.3% prior to the pandemic and the Fed will want to see it trending back there before declaring any victory in returning to full employment. The three-month average in job gains is 541 thousand which implies nearly 14 months, or mid-to-late 2022 before all those jobs are recouped. That long runway for continued monetary accommodation goes a long way in explaining Treasuries rallying on the heels of the jobs report.

2. May CPI Report—Thursday

The March and April CPI releases were the first to experience  material monthly price gains and the so-called base effect that resulted in significantly higher year-over-year prices. The May report should see historically strong price gains, but certainly well off what we saw in the past two months.  For May, overall CPI is expected to increase  0.4% versus 0.8% the prior month. The core rate (ex-food and energy) is expected to also increase 0.4% versus 0.9% in April.  Overall CPI (YoY) is expected to move higher to  4.7% after last month’s 4.2% result. Core CPI (YoY) is expected to increase to 3.4% after a 3.0% rate in April. So far the market has taken the price spikes largely in stride, but as the YoY numbers continue to edge higher will they take heed and not force yields higher?

3. Weekly Jobless Claims—Thursday

For the first time since the pandemic weekly initial jobless claims dipped below 400 thousand for the week ending May 29 to 385 thousand. That was the fifth consecutive pandemic low in claims. Expectations are for claims to continue lower to 365 thousand for the week ending June 5th. Obviously claims moving lower are a positive and with continuing claims have been moving lower too with 3.771 million still claiming some benefit but including the emergency program that number soars to 15.4 million. 24 states have already suspended those emergency program payments and the rest will expire in September. Thus, that 15.4 million number should drop considerably in the months ahead as benefits expire and claimants move back into the labor force.

4. June Preliminary University of Michigan Consumer Sentiment—Friday

Two-thirds of the US economy is consumption-based so gauging consumer sentiment is crucial to determining how they feel about spending, especially as virus cases trend lower and vaccination rates climb. Sentiment took a hit in May as inflation expectations rose. For June, the Bloomberg consensus is for sentiment to improve slightly to 84.0 versus May’s  82.9 reading but consumer expectations may move lower to 78.4 versus 78.8 in April. Inflation expectations will be watched closely after they spiked to 4.6% in May for the 1yr outlook and to 3.0% in the 5-10yr outlook.

5. April Job Opening and Labor Turnover Surveys-Tuesday

The JOLTS Job Openings Survey provides some additional details that are not in the more famous BLS Employment Report and even though the report is a month behind the information is of interest to policy makers and investors alike. Expectations are for 8.2 million job openings versus 8.1 million in the prior month. These levels are all-time highs for the index that goes back to 2001. The Quits Rate will be checked as well as it measures the confidence of workers who voluntarily leave a job in search of a better one. The rate has been 2.4% of all workers for the past two months which is an all-time high.

 


 

Yield Universe

 

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Published: 06/07/21 Author: Thomas R. Fitzgerald