April Jobs Report & FOMC Meeting Highlight Busy Event Week

Apr 29, 2019
Federal Reserve Building

April Employment Numbers & FOMC Highlight Busy Event Week

This week is chock full of first-tier events from the April jobs report to the FOMC meeting to reads on April manufacturing, first quarter productivity and consumer confidence. While the FOMC meeting is not expected to have much in the way of earth-shattering developments, given they have adopted a patient pause approach to rate hikes, they may discuss a downward adjustment to IOER given the effective fed funds rate at 2.44% is drifting uncomfortably close to the upper band of 2.50%. When this happened in the past year the Fed would move IOER only 20bps when hiking the funds rate 25bps. With no rate hike expected, adjusting the IOER would entail a cut to the existing rate. Explaining that as just an adjustment to the plumbing in the fed funds market and not an actual easing in policy rates may be a tough task. Anyway, we’ll be looking to see if that is discussed in the statement or Powell press conference. As for economic reports most are expected to show solid results that continue to reflect an economy with plenty of momentum.


Treasuries
Treasury Curve Today Week Change
3 Month 2.41% -0.01%
6 Month 2.45% -0.01%
1 Year 2.41% -0.03%
2 Year 2.30% -0.08%
3 Year 2.27% -0.08%
5 Year 2.31% -0.07%
10 Year 2.53% -0.04%
30 Year 2.95% -0.03%
Short-Term Rates
Fed Funds 2.50%
Prime Rate 5.50%
3 Mo LIBOR 2.58%
6 Mo LIBOR 2.62%
12 Mo LIBOR 2.72%
Swap Rates
3 Year 2.338%
5 Year 2.342%
10 Year 2.508%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Apr 29 Personal Income and Spending Mar 0.4% 0.4% 0.2%
Apr 30 S&P CoreLogic CS Home Price Idx Feb 3.20% 3.10% 3.58%
Apr 30 Conf. Board Consumer Confidence Apr 126.1 126.7 124.1
May 1 ISM Manufacturing Apr 55.0 55.0 55.3
May 1 FOMC Rate Decision May 1 2.25%-2.50% 2.25%-2.50% 2.25%-2.50%
May 2 Productivity 1Q P 2.3% 2.3% 1.8%
May 3 Change in Nonfarm Payrolls Apr 185k 188k 196k
May 3 Unemployment Rate Apr 3.8% 3.8% 3.8%
May 3 Avg. Hourly Earnings YoY Apr 3.3% 3.3% 3.2%

calendar icon Top 5 Events for the Week

APR 29 - May 3, 2019

1.  April Employment Report — Friday
2.  FOMC Rate Decision – Wednesday
3.  April ISM Manufacturing – Wednesday
4.  First Quarter Productivity – Thursday
5.  April Consumer Confidence - Tuesday   

 

1.  April Employment Report — Friday

This Friday’s April jobs report is likely to show an on-trend result that is very similar to March which reflected a nice rebound versus February’s weak winter-impacted results.  The headline number is expected to print a 188k gain versus 196k the prior month. Other metrics within the report are calling for a solid read on the labor market. The unemployment rate is expected to stay at 3.8% for a third straight month after creeping up to 4.0% in January.  Wage gains are expected to improve to 0.3% for the month versus 0.1% in March. YoY wage gains are expected to remain solid at 3.3% versus 3.2% in March.  In summary, if the report comes as expected it will show a labor market that maintained momentum in April after rebounding in March from a one-off weather-influenced headline miss the prior month.

 

2.  FOMC Rate Decision – Wednesday

Perhaps the biggest drama for this Wednesday’s FOMC meeting is if they decide to adjust the Interest on Excess Reserves (IOER) rate that is currently 2.4%.  The issue is that the effective fed funds rate has been moving closer to the upper band of 2.50% (currently 2.44%)and when that has happened in the past they would move the IOER rate up only 20bps when hiking the fed funds rate by 25bps to give some more headroom between the effective rate and the upper band. The problem now would be in the absence of a fed funds rate hike they would be forced to cut the IOER rate by 5bps. That may confuse some market participants that the Fed is easing when, in fact, it would be a technical adjustment. This week’s meeting may be a little early to effect the actual cut so they may begin to prepare the market with some commentary and follow that with an IOER cut in June. Like we said, that may be the only drama for this week’s meeting but it’s one to watch.

 

3.  April ISM Manufacturing – Wednesday

Along with this week’s jobs report the ISM Manufacturing report will give us an early tell on April activity.  The forecast for April manufacturing is expected to print a 55.0 versus 55.3 in March and below the 12-month average of 57.7.  The continued moderation in manufacturing is most likely attributable to the inventory overbuild that was noted in the first quarter GDP.  In summary, however, the ISM report is expected to show continued expansion with little sign of concerning slippage in manufacturing activity.

 

4.  First Quarter Productivity – Thursday

Modest productivity growth has been one of the ongoing conundrums of this expansion. Fourth quarter productivity did generate solid improvement moving to 1.8% which is near the 30-year average of 2.0%. Improving productivity is one of two key elements that define potential GDP for an economy (with the other being labor force growth). With productivity oscillating between 1.0% and 1.8% and labor force growth stuck around 0.5% due to demographic shifts that has limited long-run GDP potential to around 1.5% to 2.3%. While productivity improved to 1.8% in the fourth quarter, expectations are for continued improvement with a print of  2.3% in the first quarter which signals that improvement in potential GDP could be possible with continued gains in productivity.

 

US Productivity

 

5. April Consumer Confidence - Tuesday

Consumer confidence took a hit after the fourth quarter volatility in financial markets and the bloodletting in stocks and consumers reacted to those events by dialing back purchases of big ticket items. With the solid recovery in stocks so far in 2019, consumer confidence has improved and that has been followed by a March rebound in spending.  Expectations are for confidence to continue to improve with the April Conference Board’s Confidence Report coming in at 126.7 versus 124.1 in March. If that is the case it will buttress the argument that second quarter GDP results should be fine, even with a reversal in trade and inventory numbers after their first quarter one-off gains, as an increasingly confident consumer returns to their spending ways.

 

 


bar graph icon  Investment Yield Ranges Over Last Year

 

US TreasuriesFHLB Agency BulletsMortgage Backed SecuritiesMunicipalsUS Corporate - FinancialsUS Corporate - Financials 

Source: Bloomberg

 


 

Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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