Continuing to decelerate.

As previously discussed, I see no chance of a reversal until deficit spending- public or private- picks up to offset the unspent income/savings desires:

Employment Situation

Highlights
The assessment of the labor market, not to mention the outlook for consumer spending, just came down as nonfarm payrolls proved much weaker than expected in May, up only 38,000 with the two prior months revised a total of 59,000 lower. The Verizon strike is a negative in the data but not a decisive one, pulling down telecommunication payrolls by 37,000 in a loss that will be reversed in coming reports now that the strike has been resolved.

The labor force as measured by the household survey shrank sharply, in turn driving down the unemployment rate by 3 tenths to a 4.7 percent level that embodies monthly weakness, not strength, in the labor market. The labor force participation rate, after having shown life in prior months, is down 2 tenths to 62.6 percent.

Earnings data are soft with average hourly earnings up only 0.2 percent with the year-on-year rate unchanged at a less-than-inflationary 2.5 percent. The average workweek is at 34.4 hours with the prior month revised 1 tenth lower to 34.4 as well.

Payrolls by industry show wide declines apart from telecommunications. Construction spending has been strong but construction payrolls, at minus 15,000, are down for a second month. Manufacturing payrolls, which have been consistently weak, are weak again, down 10,000 in the month. And mining payrolls extended their long contraction, also down 10,000 in the month. Of special note, temporary workers fell 21,000 but in a reading that could have been affected by the Verizon strike. On the positive side are government payrolls, up 13,000 in the month, and retail trade, up 11,000.

But positives are very hard to find in this report. Throw out any chance of a rate hike at this month’s FOMC and look for Janet Yellen, in her appearance on Monday, to offer an explanation for the sudden downgrade to the economic outlook.

Also down:

PMI Services Index

And another bad May reading more than reversing an April improvement:

ISM Non-Mfg Index

Highlights
The ISM’s non-manufacturing index confirms what is proving to be a very weak month of May for the nation’s economy. The index fell a very sharp 2.8 points to 52.9 to signal the weakest rate of monthly growth since January 2014. The report’s employment index, in what matches this morning’s data from the government, is the weakest component, down 3.3 points to a 49.7 level that signals marginal month-to-month contraction in the sample’s employment levels.

But there is a solid signal of strength in the report as new orders, though falling 5.7 points, are still well over the breakeven level at 54.2. Yet even here, the rate of growth is the slowest since February 2014. Another plus, or at least not a negative, is no change for backlog orders which are at 50.0, still the weakest reading since May 2015. Demand for the nation’s services is always a plus for trade data but this report is hinting at a downturn with the export index at 49.0 and the lowest level since April last year.

ISM’s sample was active as far as output goes with the business activity index at 55.1, yet still down 3.7 points, and were still active importers with the related index at 53.5 for only a half point dip. Prices are also a positive, up 2.2 points to 55.6 and reflecting increases underway in energy prices in what is welcome news for policy makers who are trying to stimulate inflation.

Otherwise, however, there is very little welcome news at all in the May report. This report has been consistently upbeat which underscores the unwelcome importance of today’s results.

An ok headline number and prior month revision, but year over year, as shown in the chart, and removes seasonal factors, remains negative, even with the aircraft orders included:

Factory Orders

Highlights
Factory orders did rise 1.9 percent in April but reflect a monthly swing higher for civilian aircraft. Otherwise, data are mostly soft especially for core capital goods where orders, reflecting contraction for machinery, fell 0.6 percent and follow a soft 0.3 percent rise in March and a steep 2.1 percent decline in February. Orders for non-durable goods rose 0.4 percent and reflect, not fundamental strength in demand, but the month’s rise in energy prices.

One plus is that the nation’s factories are keeping down their inventories which extended a run of declines with a 0.1 percent dip that pulls the inventory-to-shipments ratio down one notch to 1.36. Unfilled orders, which had been very weak, rebounded to plus 0.6 percent in another positive while shipments, in the biggest positive of all, rose a sizable 0.5 percent.

But the story of this report is really about business investment where the decline in core capital goods orders is a serious negative, especially for the nation’s weak productivity outlook. Note that the factory orders report includes revised data on durable goods and initial data on non-durable goods.

Yet another pretty good April release that I suspect will be reversed in May, as has happened with several other data series. And the increased spending on gasoline due to higher prices coincided with a reduction in the savings rate, as April spending outstripped income. And note that March’s +.1 was revised to 0 with this April number also subject to revision.

Personal Income and Outlays

Highlights
April was definitely the month of the consumer as consumer spending surged 1.0 percent for the largest monthly jump of the economic cycle, since August 2009. The spending gain reflects strength in vehicle sales, which boosted durable spending by an outsized 2.3 percent in the month, and also reflects price effects for gasoline as spending on nondurable goods rose 1.4 percent. Spending on services, which is a bulwark of this report, rose a very solid 0.6 percent in the month.

The income side of today’s report is also strong, up 0.4 percent which includes a 0.5 percent rise for wages & salaries. Consumers tapped into their savings for the spending rush as the savings rate fell 5 tenths to what is still a very solid 5.4 percent.

Price data are mixed as the PCE core rate — which is the Fed’s most important gauge — rose only 0.2 percent with the year-on-year rate decidedly flat at an unchanged 1.6 percent and still, despite the gain for wages, 4 tenths below target. The overall price index shows more life, up 0.3 percent on the month and 3 tenths higher on the year at plus 1.1 percent.

The spending side of this report is an eye catcher and if repeated in May could very well, despite the lack of pressure on core prices, raise the chances for a June FOMC rate hike. Note that unit vehicle sales, to be posted on tomorrow’s calendar, will offer the first substantial clues on consumer spending in May.

Speaking of firmer April releases that reversed in May, here’s another example:

Chicago PMI

Highlights
Businesses in the Chicago area are reporting slowing conditions with the PMI down 1.1 points to a sub-50 contractionary reading of 49.3. New orders, which slowed in the prior month, are now also in outright contraction as are backlog orders. Production is also in contraction while employment, though slowing, is still above 50 — but likely not for long given the weakness in orders and production.

A key indication of overall weakness is sharp contraction underway in inventories which are at their lowest point since November 2009. The decrease in inventories points to caution among businesses which apparently do not see demand improving. The prices paid index slowed but remains above 50 to indicate monthly growth, which is a plus right now as policy makers try to stimulate inflation.

The Chicago PMI has been up and down this year though the trend is pointing lower. Still, this report is dwarfed in importance by the big surge posted in this morning’s consumer income and spending data. The Chicago PMI samples companies from both the manufacturing and non-manufacturing sectors.

And yet another April uptick reverses in May:

Consumer Confidence

And a big time reversal into contraction from April to May here as well:

Dallas Fed Mfg Survey

Highlights
The Dallas manufacturing production index fell into negative territory with a reading of minus 13.1 from a positive 5.8 reading in April. At the same time, the May general activity index sank to minus 20.8 from minus 13.9 last time. This was the 17th consecutive negative reading.

New orders also fell back into negative territory. After popping up 6.2 in April after four consecutive declines, new orders dropped to a reading of minus 14.9. Employment remains weak, at minus 6.7 for a fifth straight contraction. Price data showed some life with wages up and raw materials, which had been week, also up. Selling prices, however, remain a negative, at minus 3.3, an improvement from minus 6.6 in April.

The ongoing recovery for oil is having a positive effect on energy prices and is likely to have a wider positive effect for the Texas manufacturing area eventually. However, this report is a setback.

And even this indicator, whatever it is, shows the same pattern:

State Street Investor Confidence Index