A mixed April jobs report keyed a rally in stocks on Friday but the major U.S. equity indexes ended mixed for the week.
Investors and traders apparently focused on the headline unemployment rate, which fell to 3.9% – the lowest rate since December 2000 – following six months holding at 4.1%. Otherwise, the report came in a little on the soft side. Nonfarm payrolls rose a less-than-expected 164,000, about 27,000 below the Street consensus forecast, but that was somewhat offset by an upward revision of 32,000 in March’s total to 135,000. On the income side, average hourly earnings ticked up just 0.1% for the month, 2.6% compared to a year earlier.
However, that was evidently good enough to raise investors’ spirits. NASDAQ gained 1.7% on the day, followed by the Dow with a 1.4% rise and the S&P 500 up 1.3%. For the week, though, NASDAQ was up 1.3%, thanks to Friday’s gain, while the Dow and S&P lost 0.2%. Friday’s rally also carried over into Europe, where stocks were higher both for the day and the week. The Stoxx Europe was up 0.6% for the day and the week, keeping its six-week winning streak alive. Japanese stocks are also up six straight weeks following last week’s fractional gain in a holiday-shortened session. Bonds were basically unchanged on the week, with the 10-year U.S. Treasury note holding steady at 2.95%.
Friday’s jobs report might be strong enough for the Federal Reserve to keep raising interest rates this year. As expected, the Fed left interest rates unchanged at last week’s monetary policy meeting but provided no indication that it intends to back off from previous signals of more rate hikes to come later this year, even before the jobs report came out. “The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate,” the Fed said following Wednesday’s meeting. The Fed’s next meeting is June 12-13, at which it is widely expected to make the next rate increase.
In addition to the jobs report there were several other important economic indicators released last week. The Institute for Supply Management’s two purchasing managers’ indexes both continued a recent downtrend, with each falling exactly two full points last month. The nonmanufacturing index, which tracks most of the economy, declined to 56.8 while the manufacturing gauge slipped to 57.3. Both indexes have now fallen three months in a row, although they are coming off multiyear highs and remain well above 50, the dividing line between expansion and contraction. April auto sales fell slightly to an annualized rate of 17.2 million units, down from 17.5 million in March. Consumer spending rebounded 0.4% in March following a downwardly revised no change in February while personal incomes gained 0.3% for the second straight month. The core personal-consumption expenditures price index, the Fed’s favored consumer inflation measure, rose 0.2% compared to the month before and 1.9% versus a year earlier. Pending home sales for March rose 0.4%. Factory orders rose 1.6%, matching February’s gain, but construction spending fell an unexpected 1.7% after rising by an upwardly revised 1.0% in February.
Reports/dates/facts/links worth paying attention to over the next week:
1. May 7: Consumer credit for March.
2. May 9: Producer price index for April.
3. May 10: Weekly unemployment claims; consumer price index for April.
4. May 11: University of Michigan consumer sentiment index for May, first reading.