The labor market remained strong in May, as more jobs than expected were added, says Commonwealth CIO Brad McMillan in his latest Economic Risk Factor Update. For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.

1. The Independent Market Observer
Economic Risk Factor Update
June 2023

2. Source: Institute for Supply Management, Haver Analytics
ISM Services: Services PMI Composite Index
SA, 50+ = Increasing
The Service
Sector
Risk
Level

3. The Service Sector continued
• Service sector confidence fell, with the index dropping from
51.9 in April to 50.3 in May.
• This result left the index in expansionary territory for the fifth
month in a row after a surprise decline in December.
• We have left the risk level at yellow for now due to the recent
volatility in the index.
Risk
Level

4. Source: Bureau of Labor Statistics, Haver Analytics
All Employees: Total Nonfarm
% Change – Year to Year, SA
Private
Employment:
Annual
Change
Risk
Level

5. Private Employment: Annual Change continued
• 339,000 jobs were added in May, which was better than the
195,000 jobs that were projected.
• This marks 29 consecutive months of job growth, highlighting
the current strength of the labor market despite the
challenges created by inflation and the tight labor supply.
Risk
Level

6. Source: Haver Analytics
Spread Between 10-Year U.S. Treasury and 3-Month U.S. Treasury
Yield Curve
(10-Year Minus
3-Month
Treasury Rates)
Risk
Level

7. Yield Curve (10-Year Minus 3-Month Treasury Rates)
continued
• The yield curve inversion grew larger in May. The 3-month
Treasury yield rose from 5.10% at the end of April to 5.52% at
the end of May. The 10-year Treasury yield increased from 3.44%
to 3.64%.
• This now marks eight consecutive months with an inverted
3-month 10-year yield curve. While this doesn’t guarantee that
the economy will enter a recession, it’s a widely monitored
technical signal that could indicate further slowdowns.
Risk
Level

8. Source: The Conference Board/Haver Analytics
Conference Board: Consumer Confidence
% Change – Year to Year SA, 1985=100
Consumer
Confidence:
Annual
Change
Risk
Level

9. Consumer Confidence: Annual Change continued
• Consumer confidence dropped from 103.7 in April to 102.3
in May.
• On a year-over-year basis, confidence declined 0.87% in May,
marking 15 consecutive months of declining
year-over-year confidence.
• While the year-over-year decline remains outside of the
historical danger zone, we have kept this indicator at a red for
now due to the continued year-over-year declines.
Risk
Level

10. Conclusion: A Mixed May for the Economy
• May was a mixed month for the economy, as the strong labor
market clashed with lowered business and
consumer confidence.
• Continued economic growth remains the most likely path
forward, but real risks remain in this outlook.
• The path of recovery remains uncertain in the short term, and
caution is still warranted.
Risk
Level

11. Certain sections of this commentary contain forward-
looking statements that are based on our reasonable
expectations, estimates, projections, and assumptions.
Forward-looking statements are not guarantees of future
performance and involve certain risks and uncertainties,
which are difficult to predict. Past performance is not
indicative of future results.
Diversification does not assure a profit or protect against
loss in declining markets. All indices are unmanaged, and
investors cannot invest directly in an index.
The information contained herein is provided for
informational purposes only and is based upon sources
believed to be reliable. No guarantee is made as to the
completeness or accuracy of the information.
Disclosure