Two the Point — The Soft Side of Hard Data

Economic signals are sending a mixed message, resilient on the surface, but showing signs of softening underneath. This week’s data reinforces the importance of staying nimble yet disciplined as the late-cycle narrative gains traction.

Key Takeaways:

• Labor Market Deceleration: May nonfarm payrolls rose +139,000, but prior months were revised down by a combined -95,000, continuing a trend of downward revisions.
• Hiring Breadth Narrows: The diffusion index fell to 50.0, the lowest in over a year, suggesting job gains are becoming increasingly concentrated with less industries hiring.
• Jobless Claims Rise: Initial claims hit 247,000 last week, with the 4-week average moving higher, pointing to emerging stress in the labor market.
• Small Business Sentiment Turns Up: The NFIB Optimism Index climbed to 98.8, with expected sales and business conditions driving the gain, even as uncertainty remains elevated.
• Sticky Wages, Cautious Fed: Wage growth surprised to the upside at +0.4% m/m, while the Fed holds rates steady amid Q1 productivity declines and rising unit labor costs (+6.6%).
• Equity Markets Look Through the Fog: Stocks sit just about ~2.5% below February highs, as of this recording, buoyed by resilient financial conditions and renewed optimism in M&A and IPO pipelines.