U.S. economy, markets hold firm into summer

The U.S. economy and financial markets entered the summer with a string of positive data. Corporate earnings broadly exceeded forecasts, retail sales excluding autos rose 0.7% month-over-month in the latest report, and the unemployment rate remained at 4.3%. Job openings and layoffs are low by historical standards, creating what economists describe as a ‘low-hire, low-fire’ labor market; hiring has slowed since the post-pandemic surge but continues to support economic activity.

Manufacturing indicators moved closer to expansion. Recent ISM manufacturing surveys hovered near the 50 level that separates contraction from expansion, and production trends showed improvement. Durable goods orders for April surpassed expectations, with investment in artificial intelligence infrastructure and related technology cited as one contributor to stronger demand for equipment.

Consumer sentiment and spending diverged. University of Michigan surveys recorded relatively weak confidence, driven largely by concerns about inflation and the cost of living. Despite weaker sentiment, household spending remained steady: retail sales excluding autos posted consecutive monthly gains and personal income growth only modestly slowed.

Monetary policy developments drew market attention. Kevin Warsh became Chair of the Federal Reserve in May, succeeding Jerome Powell. Inflation remains above the Fed’s 2% target, with recent energy-price swings affecting headline measures. Warsh has highlighted alternative measures, including the Dallas Fed’s Trimmed Mean PCE index, which indicate underlying price pressures may be more moderate than headline readings suggest.

Equity markets reflected the mix of earnings strength and continued business investment, while volatility persisted around economic and policy data. Market participants are watching upcoming inflation reports, labor market releases and consumer spending figures for further signals on growth and price trends.