The April employment report was weaker than expected on the job gains side, as 160,000 new jobs were created last month versus an expectation of 200,000. Employment numbers tend to be volatile month to month, and, as a result, I prefer to look at six-month averages to tell a more accurate story of employment trends. For the last six months, average job gains have been 220,000,compared to a monthly average of 229,000 for 2015.
Overall, I believe that employment will continue to be solid but below what might be expected at this point in an economic recovery. The other piece of information in the employment report that bears watching is the increase in average hourly earnings. Earnings increased by 0.3% last month, and it has increased by 2.5% over the last twelve months. The Federal Reserve (Fed) will be paying close attention to wage gains to gauge future inflation risks.
This week, pay close attention to the retail sales report to get a glimpse at how consumers are doing. I expect to see an uptick in volatility in the stock and bond markets over the next few weeks as market participants digest a significant amount of data (economic and corporate earnings) prior to the June Fed meeting.
I am growing more cautious on U.S. equities for the next few months as it looks like the rally we have seen since mid February has stalled short of making a new high. Look for the S&P 500 Index to test 2,000 in the next few weeks.
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