Source: South State Bank

• The May jobs report will likely set the tone for the upcoming June FOMC meeting on the 16th. Will it be a strong result like March or will it be another mediocre report like April? The Fed has made clear they are willing to absorb hotter inflation numbers while they wait for the labor market to return to pre-pandemic levels. The question is how long will that wait be and that is somewhat dependent on how quickly those 8 million or so jobs still missing will be made up. The May median expectation is for a gain of 650 thousand jobs with the unemployment rate dropping from 6.1% to 5.9%. That would put the month close to March’s  770 thousand jobs and well clear of April’s 266 thousand jobs. The broader underemployment rate is still in double-digits at 10.4%. It was as low as  6.8% in December 2019 and that is what the Fed will be looking to get back to before hailing the recovery as complete. That still seems a long way off.
• In addition to the employment numbers, we get another big May economic report in the form of the ISM Manufacturing Index later this morning. Combined with the jobs report on Friday and the ISM Services on Thursday these three reports will give us a good read on May activity. The ISM Manufacturing Index is expected to be a solid 61.0 versus 60.7 in April indicating the manufacturing sector is expected to remain in strong expansionary territory which has been the case since last June. The April reading, however, came in weaker than expected at 60.7 when 65.0 was forecast but plenty of that was from of a lack of parts, namely chips for autos. With those shortages still weighing on the sector a sub-60 print could be possible but looking through those shortages the sector still seems very healthy.
• After the ISM Manufacturing Index today, the ISM Services Index will try to impress investors on Thursday with an expected print of 63.3 versus 62.7 in April. It’s been obvious from the beginning of the pandemic that service businesses, those dealing in face-to-face transactions, have suffered the most in the last year but the time is coming for the services-side to begin rivaling the manufacturing sector with solid expansionary gains given the spreading vaccination rates.  If the May print comes as expected it will be just shy of the all-time high reading of 63.7 set in March.  That seems to suggest the services-side of the economy is coming back strong.
• Construction spending has been all over the map so far in 2021 and to a certain extent, dealing with the vagaries of winter weather, that is to be expected. The housing market for one has seen a plateauing in new builds but that has more to do with sky-high lumber prices so it can’t all be blamed on the weather. For April, expectations are for construction spending to increase 0.5% month-over-month from the 0.2% gain in March. That gain came on the heels of an ugly –0.6% decline in February which was decidedly due to poor weather. With the summer months here, expect construction spending to post some solid gains in the months to come and should be a source of positive GDP contribution in the second and third quarters.
• It’s time to check in on the weekly jobless claims numbers as they seem to be dipping down again which obviously bodes well for the labor market. Claims have now moved lower for four straight weeks with the latest claims figure of  406,000 the lowest since the pandemic hit. The expectation for claims this week is 385,000, the first 3-handle claims figure may be in our future. That bodes well for the May jobs report to bounce back from the disappointing April report.