Manufacturing sentiment contracted for the fourth month in a row with as tariffs weighed on businesses. Tariffs put continuing pressure on prices while dampening new orders and employment within the manufacturing sector.
But the service sector, especially leisure and hospitality, remained on a strong footing, accounting for most of the surprise increase in job openings in May.
- The ISM manufacturing index increased slightly to 49 from 48.5, with an index lower than 50 indicating contraction.
- The ISM prices paid subindex rose to 69.7 from 69.4 while the employment subindex fell to 45 from 46.8.
- Job openings, in a separate report released Tuesday, spiked to 7.769 million from 7.395 million with leisure and hospitality accounting for nearly 300,000 new openings.
If the job openings data is any indication, the June jobs report is likely to be a strong one when it is released on Thursday.
Our forecast points to an increase of 100,000 jobs, which is within our sustainable long-term level that does not put extra pressure on inflation.
While job openings rose unexpectedly, we think most of those openings were temporary jobs at a lower wage range than average.
Not only did a large portion of the increase come from lower-paying leisure and hospitality positions, but the gains also came mostly from small businesses with fewer than 10 employees.
That means the finer details of the data imply a less rosy picture for the labor market than what the headlines might suggest.
The quit rate and layoff rate remained steady, another confirmation that businesses have been in a wait-and-see mode as they assess the impact of tariffs.
Overall, the mixed data on jobs and manufacturing on Tuesday does not help make the picture any clearer for the Federal Reserve on its interest rate policy. The biggest factor in the Fed’s decision in the coming months will be inflation as tariffs filter through the economy.
