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Understanding the Trends that Affected the FOMC Decision

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How economic indicators have fared since the last FOMC meeting

Economic indicators that have been reported since the last FOMC meeting were mixed. We saw March employment data disappoint markets (MTUM) with only 98,000 jobs added, compared to the 219,000 jobs added in February. April jobs numbers are expected to come in higher, which should calm investors as employment numbers are one of the key considerations for the Fed. The unemployment rate has remained stable near 4.5%, which was highlighted in the Fed statement released after the May meeting. Hourly earnings rose 0.1% in March. This month, consensus expectations are for a 0.3% rise.

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Industrial production and construction spending

Though the Fed hasn’t specifically outlined these economic indicators, industrial activity and construction spending act as forward guidance for many economic indicators. An increase in industrial production and construction spending means more workers finding employment in the near term. Industrial production (XLI) and construction (ITB) spending are expected to rise 0.4% in May as per Wall Street analyst expectations.

Consumer confidence and retail sales

Consumer confidence remains high in the United States, supporting the positive economic trends of the recent past. After a reading of 124.9 in March, which was the highest since 2000, the confidence index fell to 120.3 in April. But this reading is still impressive. Retail sales (XLY) were reported lower in the last few months, indicating that US spending has fallen despite higher consumer confidence.

In the next part of this series, we’ll look at how equity markets (SPY) reacted to the FOMC’s May meeting statement.

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