The payrolls report released last week suggested the U.S. economy is back on trend after a rocky first quarter, and upcoming data will give some sense of whether that’s the case.
The key jobs report from the Labor Department showed 223,000 jobs added in April. That’s by no means terrific, but it looks pretty good compared to the 85,000 reading for March.
And it suggests that factors such as port delays and bad weather that conspired to hold back the economy in the beginning of the year will only make a temporary dent going forward. A nice rise in construction employment in April, of 45,000, helps support that view that better weather will help restore demand.
That said, the strength of the dollar and the pain felt in the energy industry due to the collapse in oil prices could mean that the powerful recovery in 2014’s second quarter won’t be felt this time around. Last year, a 2.1% contraction in the first quarter was followed by a 4.6% surge in the second quarter. Most economists now expect the first quarter of 2015 to have contracted, despite the initial reading of an 0.2% expansion.
“Taken together with other recent data, it now appears that the second quarter growth outlook is better than the first quarter, but headwinds to growth will likely remain,” said economists from Wells Fargo Securities in a note to clients.
Retail sales data due Wednesday will capture the market’s attention. Though sales rose 0.9% in March, that was below the market expectation after three monthly falls.
“Our high-frequency data measuring consumer spending has been indicating a slower pace than we would have expected coming out of the winter snows. The slower pace of employment and income growth goes a long way of explaining why,” said Steve Blitz, chief economist at ITG Investment Research.
Average hourly earnings grew 2.2% in the 12 months to April, a bit slower than the 2.6% rise in the first quarter in the widely tracked employment cost index.
For markets, a U.S. economy in second gear isn’t the worst thing in the world. “The economy continues to improve, but not so much that the Fed will rush to take away the punch bowl. That’s good news for the financial markets,” said Scott Brown of Raymond James.
Other key reports for the week will include data on March job openings — a report to which Federal Reserve Chairwoman Janet Yellen says she pays particular attention — April industrial production and May consumer sentiment.