The nation’s factory sector appears to be gaining momentum albeit in an uneven environment. The ISM Manufacturing Index headline remains relatively high, but signs of stress in details behind the headline are becoming more apparent. Factory Orders beat expectations, up strongly in both February and March, led by gains for durable goods. An important positive in the month was a rise in backlog orders, pointing to strength ahead and the potential for the sector to be an overall contributor.

Data outside of the factory sector was mixed. April’s ISM Non-Manufacturing report was one of the strongest small-sample surveys on the economic calendar. New orders remain exceptionally strong and delivery times are extended, evidence of pressure on shipping. The housing sector created weakness in the Construction Spending report, both single- and multi-family homes down in the month. This data is known for its volatility, however, which limits the surprise. The International Trade deficit fell sharply in the month as exports rose 2.0% while imports fell -1.8%.

Personal Income & Outlays: Core inflation, as measured by core PCE, is nearing the Fed’s 2% target at 1.9%, Y/Y. The monthly gain for core PCE was more modest. Consumer spending rose as expected, and strength in spending on durables more than offset weakness in spending on non-durables. Income data was more subdued, well below the pace of the prior four months.

The labor market continues to tighten, as indicated by the Employment Situation report, where nonfarm payrolls rose on the lower side of expectations, but revisions to the prior two months made up the difference. The unemployment rate fell to 3.9% and, though the labor force participation rate ticked downward, it doesn’t seem that employers are having to pay more to attract workers. Average hourly earnings just inched higher but were still below expectations. Jobless Claims remained at a 49-year low.