The Bottom Line

Economic news was mixed this week. The employment report, the mother of all indicators, showed that the recovery in the labor market is soft thus far. In fact, it appears that economic growth stalled in the second quarter. Motor vehicle sales plunged in May. While the overall selling rate is not horrendous, changes matter when looking at quarterly growth patterns. Thus, the drop dampens second-quarter consumer spending. Other news was friendlier. The ISM surveys for manufacturing and the service sector showed significant improvement in May. Construction spending continues to rise.

The FOMC meeting will be coming up at the end of this month. Given the struggling employment situation, Fed officials should be in no rush to raise the federal funds rate target. Most economists had predicted a rate hike for August and this is still a reasonable scenario.