As I’ve been writing, interest rates have risen since January from stronger economic data (real and inflation data.) In recent days, the biggest challenge to that theme has appeared.

The balance of economic data released in April was stronger than expected but a few data points were weaker. The ISM Service-sector survey (and key sub-indices) missed expectations (4/3), the NFIB Small Business Optimism index made a 10-year low (4/9), Housing starts and Permits missed expectations (4/16), and Q1 GDP came in lower at 1.6% vs 2.5% expected (4/25.) None of that signaled a turn given that the ISM Manufacturing-sector survey, Payrolls, CPI, Retail Sales, and Consumer Spending, were stronger than expectations last month.

But, perhaps it was an omen. In the last three days (representing the first top-tier data from April), the ISM Manufacturing-sector survey fell back below 50 to 49.2 on Wednesday, Payrolls missed expectations this morning (by 65k jobs) along with 22k of downward revisions, the Unemployment Rate rose up to 3.9% which brings it 2/3rds of the way to triggering the Sahm rule and the closest it has been to doing so in this cycle. The ISM Service-sector survey fell again today to 49.4 and its employment sub-index fell to 45.9, albeit while the prices paid sub-index rose to 59.2. None of this weakness is of the severity of what last October’s data looked like which caused the Fed to turn 180-degrees dovishly, but it is notable as the first cluster of weak top-tier economic data since January.

Taken together with Jerome Powell’s re-focusing of the bond market on rate cuts (from anything but leading up to the meeting), I think that the interest rate back-up since January is over if inflation and consumer spending begins to moderate too. We get the next CPI inflation and Retail Sales report on May 15th.