Stocks are lower this morning after disappointing numbers from Broadcom. Bonds and MBS are flat.
The services economy improved in May according to the ISM Services Report. The index improved from 53.5 to 54.5, driven by a jump in new orders and inventory build. The employment index contracted. The inventories index increased markedly and prices rose as well. This is similar to what we saw in the ISM Manufacturing Report- companies are building inventory presumably to get ahead of price increases.
“Business activity hit its second highest reading since achieving the same reading of 57.7 percent in October 2024, and the New Orders and Supplier Deliveries indexes hit their third highest readings in that time frame. The Employment index, however, hit its second lowest reading since September 2025, 0.5 percentage point below its 12-month average. Respondents commented frequently that their companies had instituted hiring freezes or were not backfilling vacated positions, however, most industries reported that they were holding flat in employment month over month. Respondents reporting that new orders were higher than last month most frequently attributed this to seasonality.
The economy grew at a “slight-to-moderate” pace in the past 6 weeks according to the Fed’s Beige Book. They noted that consumer spending is following the K-shaped recovery, where the higher incomes are doing well and the lower half is struggling.
As we saw in the ISM data, manufacturing is strong. Not sure how much of that is companies trying to get ahead of inflation, suppliers switching to domestic manufacturers or data center capital expenditures. Regardless, it is a welcome development.
Employment remained flat, with increased hiring noted in manufacturing. Wage growth was in line with inflation. The labor market remains in a low hire / low fire state. Prices increased at a “moderate to strong” pace noting that energy costs due to the Iran situation are spilling over into packaging, fertilizer and food.
Home sellers are pulling their homes off the market at the fastest pace since 2020, according to Redfin. Nearly 5.8% of listings were taken off as buyers balk at high home prices and rising mortgage rates. “Sellers are still getting used to the post-pandemic normal,” said Patricia Ammann, a Redfin Premier agent in Arlington, VA. “Prices aren’t soaring like they were five years ago–high gas prices and the rising cost of living overall is trickling down to the housing market, making buyers much less likely to bid prices up. Buyers know they have negotiating power, often offering under the asking price and completing inspections, but some sellers just won’t budge.”
The private equity / SaaS blowup is not over. It is early June and many of these funds permit quarterly redemptions. We are seeing several put up gates, which limit how much an investor can withdraw. Partners Group, a Swiss PE firm just put up gates, and we have seen credit funds do the same. This seems to be relatively contained, but it is worth watching as many of the funds that buy non-QM paper swim in the same waters as these PE funds and credit problems have a habit of showing up in strange places.
