Stocks climbed a little higher Friday to finish positive for the week, as optimism over the post-pandemic U.S. economic recovery drove the investment narrative heading into the Memorial Day weekend. Stocks moved up despite a 0.7% increase in the core personal consumption price gauge for April that was the biggest monthly gain since October 2001. The focus instead fell on the consumer, with purchases of goods and services rising 0.5% in April after an upwardly revised 4.7% jump in March, the biggest since last June.
Just over half of the adults in the United States are now fully vaccinated against the coronavirus, according to new data from the CDC. Nine states - Connecticut, Hawaii, New Hampshire, New Jersey, New Mexico, Maine, Massachusetts, Rhode Island and Vermont - have even inoculated 70% of their adult population with at least one dose.
The chip shortage is one of the factors holding back GDP growth. In Q1, auto sales added 1.48% to GDP, but auto inventories plunged, more than offsetting that contribution. Motor vehicle output peaked in the third quarter of last year. America wants cars and trucks, automakers have plenty of capacity to build cars and trucks, but the chip shortage is getting in the way. To keep up with demand, Korea announced a $450B push to becoming the global chip making crown.
The disappointing 266,000 rise in payrolls in April might prove to be a brief pothole on the road to recovery. With employment still 8.2m below the pre-pandemic peak and easing restrictions allowing a continued return to normalcy, we could see a big rebound in the pace of hiring in May. The ongoing recovery in the OpenTable.com dining figures, for example, is consistent with much stronger job gains in the leisure & hospitality sector.
The shortages are seemingly being driven by a number of factors. Fears of catching the virus may have kept many workers out the labor force, but surveys show those fears are now fading rapidly. While many schools remain closed to in-person learning, the number of parents unable to work due to childcare responsibilities should be falling back. The number of seasonal immigrant workers may also start to pick up as global travel resumes.
Enhanced unemployment insurance is also be holding back employment, with many low-wage workers able to earn at least as much claiming jobless benefits as they could in work. But nearly half of states have now opted out of the enhanced Federal programs, several of which had done so by the May payroll survey week. The extra payments won’t stop until mid-June in those states, but the announcements could help to explain the more rapid decline in jobless claims.
