Hello, this is Claire Rubin, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices finished mostly higher last week. The benchmark S&P 500 Index rose 0.6% in total return for the week, closing just below an all-time high. The Nasdaq Composite Index increased half a percent and the Dow Jones Industrial Average rose 0.7%. The U.S. 10-year Treasury yield fell 4 basis points to end the week at 1.55%. The U.S. dollar strengthened modestly versus major peers and gold saw its first weekly decline in five weeks.
Themes in markets last week included optimistic economic data, lingering inflation concerns and Reddit-fueled speculative trading. Over the weekend, the Group of Seven (G-7) agreed in principle to eliminate the ability of multinational companies to use low corporate tax jurisdictions to lower their overall tax liability. The Biden administration hopes to broaden such a corporate minimum tax to the Group of 20 (G-20) in July and the Organization for Economic Co-operation and Development (OECD) in October. Domestically, the Biden administration continues to seek a 28% marginal corporate tax rate and taxation of income outside the U.S. but has offered additional flexibility in exchange for a 15% minimum tax for U.S. companies. It is far from clear whether the Biden administration has the congressional backing needed to implement these policies.
The May employment report released Friday showed that U.S. employers added 559,000 jobs to payrolls last month, below the forecast but a rebound from April’s disappointing read. Restaurants and bars reported the biggest increase in payrolls, according to the report from the Bureau of Labor Statistics. The U.S. labor market is still 7.6 million jobs short of pre-pandemic levels. The unemployment rate dropped more than anticipated to 5.8%, though the labor force participation rate also unexpectedly fell. Average hourly earnings picked up to a 2.0% pace year-over-year, faster than expected and suggesting some wage inflation may be materializing.
In other economic news, the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index rose more than expected to 61.2, well above the threshold of 50 that indicates expansion in the sector. Manufacturers are experiencing the longest delivery times since 1974 amid continued supply chain issues. The ISM Services Index also surprised to the upside, increasing to a record high for May. Construction spending rose less than expected in April, but the prior month’s gain was revised higher.
Over the weekend, Treasury Secretary Janet Yellen said President Joe Biden should move forward with his infrastructure stimulus proposals, even if the spending may spark inflation that persists into next year and lead to higher interest rates from the Federal Reserve.
In the week ahead, infrastructure stimulus negotiations continue. The U.S. economic calendar includes the May consumer price index, an important indicator of inflation pressures that will be closely watched. We’ll also get reports on small business optimism from the National Federation of Independent Business and job openings from the Job Openings and Labor Turnover Survey, or JOLTS report.
The European Central Bank sets monetary policy on Thursday and G-7 leaders meet this week.
As always, we’ll be watching and reporting back to you. Thank you.
