To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 1.0%; the U.S. Dow Jones Index up 1.2%; and the U.S. S&P 500 up 1.5%.
Well it was an interesting week - and no, I’m not speaking about the openly public meltdown between Elon Musk and Donald Trump (although that too was interesting and had me following along in fascination!). Instead, I’m referring to the hard economic data revealed by the Big 3 indicators. As I noted last week, the current batch of data reflects results from May and is solidly indicative of post-“Liberation Day” tariff disruptions. Not surprisingly, the collective data slowed, but perhaps not as dramatically as many would have thought. The results were as follows:
ISM Manufacturing – this index came in at 48.5 which represents contraction (anything below 50.0 on the ISM indices indicates shrinkage). The result was a minor slowdown from the prior month’s reading of 48.7, and a miss of expectations for a 49.3 reading. So, on the surface, not great. But really, not much different from the 2.5 year trend that has seen only one reading over 50.0 in that span (there were two other readings that were exactly 50.0).
ISM Services – of the “Big 3” indicators, this was the most disappointing at a reading of 49.9 (i.e. just barely into contractionary territory). Unlike manufacturing, services have been far more robust over the post-covid years typically indicating expansion in the vast majority of months. But there have been a handful of contractionary months (four to be exact) in the same 2.5 year stretch as I cited for manufacturing. So it happens. And, as noted, the reading was ever so minimally contractionary. One month does not a trend make so, while this data point bears watching, it would be imprudent to overreact at this juncture.
Employment – with 139,000 jobs added in May, this was the strongest of the Big 3 indicators (and also happens to be the most fundamentally important). Yes, this result too represented a slowdown from the prior month’s reading, but actually came in ahead of expectations. Further, this reading actually resulted in a slight uptick in the 3-month “moving average” (an economic term/indicator that I won’t bore readers with the details) of employment. To be sure, 139,000 new jobs in a month is not a great reading, but its not bad either. The word I’d use to describe both the trend and the current paradigm in employment is “steady.”
Given the April tariff tumult, which surely would have bled into May, I’m reasonably encouraged by the collective readings described above. Could they deteriorate further? Of course. But could they improve instead? Also, of course. The data at present is indeterminate and will need to be further tracked. Of course I will be doing so.
Last note of breaking news the past two hours – the U.S. and China will meet for a second round of trade negotiations next Monday, June 9th, in London. If it goes well, this could spur further market recovery and also potentially filter through to underlying economic data.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
Scholte Wealth Management
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