April Jobs Report and Fed Meeting in Spotlight this Week

Apr 30, 2018
Spring Garden

April Employment Report & Fed Meeting Top Busy Week

After a week that was devoted to watching every tick of the 10-year Treasury yield, this week will have some economic beef attached to it. The headline release will be Friday’s April jobs report which is expected to show yet another solid month of job gains but with hourly wages still stuck at 2.7%YoY. Before that we get the Fed rate decision on Wednesday that is widely expected to be a set-up for a rate hike at the June meeting. Also we get a first look at April results with the ISM Manufacturing survey tomorrow and the services survey on Thursday. Expectations are for a slight tick  lower in activity but with both sectors still reporting solid expansion. The Treasury will also announce auction amounts for May this week with higher funding levels expected which may jostle Treasuries.


Treasuries

Treasuries

Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar

 


Top Events of the Week Top 5 Events for the Week

APRIL 30 – MAY 4,  2018

1. April Employment Report — Friday
2. FOMC Meeting — Tues./Wed.
3. April ISM Manufacturing & Non-Manuf. — Tues./Thurs.
4. March Personal Income & Spending — Monday
5. Treasury Refunding Announcement — Wednesday

 

 

1.  April Employment Report – Friday

The April jobs release is expected to be an on-trend report with monthly job growth of 185,000 versus 103,000 in March with the unemployment rate ticking down to 4.0% after six straight months  at 4.1%. The monthly average gain in jobs over the last year has been 188,000 so the April number is expected to be mostly in line with that average.  Once again, average hourly earnings will be the key metric and it’s expected to increase 0.2% MoM versus 0.3% in March.  Year-over-year average hourly earnings are expected to remain at 2.7% for the second straight month.  The average over the past year has been 2.6%YoY, so a slight above average print is expected but one that delays for yet another month the hoped for wage acceleration that workers and the Fed are looking for.

 

2.  FOMC Rate Decision — Wednesday

This month’s Fed meeting concludes on Wednesday but it should be a pretty dull affair. With only the post-meeting statement to work from (no press conference and no economic/rate updates), it’s expected the wording will set-up the markets for a June rate hike. Anything other than that scenario will create some volatility but we expect the Fed to play it straight and talk up the economy and recent increases in inflation  such that odds of a June rate hike stay at the current 92%, or higher.

 

3.  ISM Manufacturing & Non-Manufacturing Surveys — Tuesday/Thursday

Before the April jobs report on Friday, a pair of ISM surveys will give us an early look at April economic momentum.  Tomorrow, the ISM Manufacturing Report is expected to print a headline result of 58.5 versus 59.3 in March.  Anything above 50 represents an expanding sector so the survey should show continued strength in the manufacturing sector, albeit a slight softening from March.  The non-manufacturing (services) survey is also expected to retreat slightly from March to 58.0 versus 58.8 the prior month. That slight slippage, however, won’t concern the Fed or investors as it’s still expected to be well above 50.

 

ISM Manufacturing / Non-Manufacturing

 

4.  March Personal Income and Spending — Monday

With 2/3rds of the economy tied to consumer consumption the monthly personal income and spending numbers are always a key for the economic outlook.  While today’s March numbers were part of the first quarter GDP released last Friday, the results give us some indication of the momentum heading into the second quarter. Personal income rose by 0.3% missing the 0.4% expectation and February was revised lower from 0.4% to 0.3%.  Personal spending rose by 0.4%, matching expectations and over the 0.2% in February. The yearly MoM averages have been 0.3% for income and 0.4% for spending.  Real spending—adjusted for inflation— rose a solid 0.4%  versus down –0.2% in February.  The results indicate that although first quarter consumption, at 1.1%, was the lowest in nearly five years the month of March showed a nice rebound from earlier in the quarter. If that momentum is sustained it bodes well for a rebound in consumption in the second quarter which has been the trend over the past three years.

 

5.  Treasury Refunding Announcement — Wednesday 

With the 10-year Treasury probing the 3% level last week amidst a trio of short to intermediate term note auctions(2yr, 3yr, 5yr), this week any respite could be short-lived as the Treasury Department will announce refunding levels in May for 3yr, 10yr and 30yr maturities. Expectations are for $1 billion increases for each to $31 billion (3yr), $25 billion (10yr), and $17 billion (30yr). For context, in May 2017 the auction sizes were $24 billion (3yr), $23 billion (10yrs), and $15 billion (30yrs). If issuance sizes are greater than expected it could cause some indigestion (read higher yields) for Treasury investors.

 

 

 


Technicals Investment Yield Ranges Over Last Year

 

US Treasuries

FHLB Agency Bullets

Mortgage Backed Securities 

Municipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg

 

 

 


 

Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

 

Download / Print as a PDF