The week ahead for May 2, 2022: Recession fears rise despite strong jobs, spending figures
The latest news
A surprise GDP contraction of an annualized -1.4% in Q1 dominated last week’s economic news, heightening fears that recession (defined as two consecutive quarters of contraction) could be on its way far sooner than expected. But as usual, the true picture is more complicated than the headlines. A surge in net imports and a dip in government spending provided a drag on GDP growth, while consumer spending – which advanced 1.1% in March alone – was actually higher than in Q4 2021, when GDP grew at a 6.9% rate. Furthermore, businesses investment increased, including a 1.2% rise in non-defense durable goods orders in March.
The jobs market remains tight as well, with initial jobless claims averaging under 180,000 for over a month. The combination shows that the economy’s engine is still strong. But there are warning signs as well, including the fact that personal incomes have failed to keep pace with inflation so far this year. Furthermore, the impact of lockdowns associated with China’s zero-COVID policy has yet to work its way through the supply chain, which is still adjusting to pandemic-driven shocks.
All this makes the rate calculus even more difficult for the Federal Reserve. The U.S. central bank’s latest interest rate decision will be announced on Wednesday, leading a huge week of economic news. GDP contraction will weigh on their decision, but, given robust inflation and consumer spending, most observers are still looking for a 50-bp increase in the Federal Funds Rate. A pattern of rising rates throughout the year is currently baked into the cost of buying real estate for everyone from individual home buyers to institutional investors, so markets will be watching closely for any sign of deviation. If the increase is below 50 bps, it could portend surprisingly soft growth in nonfarm payrolls during April. Those figures are due out Friday and expected to have increased by 400,000.
Finally, almost buried in the news were Amazon’s disappointing results for Q1, a reflection of consumers rebalancing toward physical and experiential retail. While demand for goods clearly remains strong, the online retailing giant’s struggles could create ripples in the market for logistics properties.
Happening this week
MONDAY, MAY 2
| Measure: | ISM Manufacturing PMI for April |
| Previous: | 57.1 |
| Expectation: | 56.8-58.0 |
Demand for goods remains strong and hiring in the sector is increasing, but inflation and supply chain constraints remain a drag on manufacturing. The net effect should be an index reading that remains in mediocre territory.
TUESDAY, MAY 3
| Measure: | Job Openings for March |
| Previous: | 11.266M |
| Expectation: | 11.27M |
Near-record job openings are expected to persist, along with elevated quits, signaling a tight labor market that is favorable to workers.
WEDNESDAY, MAY 4
| Measure: | ISM Non-Manufacturing PMI for April |
| Previous: | 58.3 |
| Expectation: | 58.5-59.0 |
The service-sector PMI should rise modestly in response to the removal of most pandemic restrictions, but inflationary pressure will provide a ceiling.
| Measure: | Fed Interest Rate Decision |
| Previous: | 0.5% (an increase of 25 bps) |
| Expectation: | 1.0% (an increase of 50 bps) |
A 50-bp increase remains the expectation, though GDP contraction may give the Fed pause almost certainly rules out a more hawkish 75-bp increase that some contrarians had suggested.
| Measure: | The Force |
| Previous: | With us |
| Expectation: | With us always |
Wednesday brings the annual celebration of Star Wars Day (May the fourth…get it?).
FRIDAY, MAY 6
| Measure: | Non Farm Payrolls for April |
| Previous: | +431K |
| Expectation: | +395-415K |
| Measure: | Unemployment Rate for April |
| Previous: | 3.6% |
| Expectation: | 3.6% |
Job growth is expected to settle gradually, though a monthly addition near 400,000 remains historically high. The unemployment rate should remain stable, with job growth offset by marginally higher labor force participation.
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