Headlines vs. Reality: When Markets Miss the Fine Print
Executive Summary
The S&P 500 finished the week up 1.50%, driven largely by Friday's market rally following a jobs report headline that masked significant underlying weakness in the labor market.
Friday's jobs report exemplified how markets can misread economic data. While the Bureau of Labor Statistics announced 139,000 jobs added in May—beating expectations of 125,000—substantial downward revisions revealed the true picture. March and April job gains were revised down by a combined 95,000 positions, meaning actual net job creation was closer to 44,000. Had the BLS announced just 44,000 jobs with no revisions, market reaction would likely have been dramatically different.
The underlying data was even more concerning. The household survey showed employment fell by 696,000—the largest decline since February. The number of newly unemployed Americans rose by 264,000 to 2.5 million, while labor force participation dropped to 62.4%. Over 90% of job gains were concentrated in just healthcare and leisure sectors, with manufacturing shedding 8,000 positions and professional services losing 18,000 jobs.
This employment weakness built throughout the week. Monday's data showed manufacturing contracting for the third straight month while construction spending declined. Tuesday brought an OECD downgrade of U.S. growth forecasts to 1.6% due to trade uncertainties. Wednesday's ADP report revealed private sector hiring at its slowest pace since March 2023, while the services sector contracted for the first time since June 2024. Thursday's unemployment claims hit an eight-month high while job cuts surged 47% year-over-year.
The consistent theme: policy uncertainty is creating economic headwinds. From manufacturing contraction to service sector weakness to concentrated job growth in just two sectors, the data suggests businesses are adopting defensive postures rather than growth strategies—a trend that Friday's surface-level headline temporarily obscured but didn't fundamentally change.
Monday:
Manufacturing Sector Contracts - The Institute for Supply Management (ISM) reported that its Manufacturing Purchasing Managers' Index (PMI) slipped to 48.5 in May, down from 48.7 in April. This marks the third straight month of contraction—any reading below 50 signals that the manufacturing sector is shrinking rather than growing.(Source: Institute for Supply Management, Manufacturing ISM® Report On Business®, May 2025, released June 2, 2025).
Construction Spending Declines - Meanwhile, the U.S. Census Bureau announced that construction spending fell by 0.4% in April. Both residential and non-residential building projects pulled back, a sign that builders may be feeling cautious in the face of ongoing economic uncertainty. (Source: U.S. Census Bureau, Construction Spending, April 2025, released June 2, 2025).
What this means for you: These trends are a reminder that sectors like manufacturing and construction tend to feel the impact of higher interest rates and policy changes sooner than others. If you're keeping an eye on the economy, these are important areas to watch.
Tuesday:
OECD Lowers U.S. Growth Forecast - The Organization for Economic Co-operation and Development (OECD) significantly reduced its U.S. economic growth forecast for 2025 to 1.6%, down from 2.8% in 2024. This downgrade is attributed to increased trade tariffs and policy uncertainties, which have disrupted supply chains and dampened business confidence. (Source: OECD Economic Outlook, May 2025, released May 2, 2025).
Manufacturing Sector Shows Signs of Weakness - The U.S. Census Bureau reported that factory orders declined by 3.7% in April to $594.6 billion, following a 3.4% increase in March. This reversal suggests potential impacts from trade policy uncertainties on the manufacturing sector. (Source: U.S. Census Bureau, Manufacturers' Shipments, Inventories, and Orders (M3), April 2025, released June 4, 2025).
Labor Market Remains Stable - The U.S. Bureau of Labor Statistics' Job Openings and Labor Turnover Survey (JOLTS) indicated that job openings increased to 7.391 million in April, surpassing the forecast of 7.1 million and marking the first monthly rise since January. The job openings rate remained at 4.4%, while the quits rate edged down to 2.0%, suggesting a stable labor market. (Source: U.S. Bureau of Labor Statistics, Job Openings and Labor Turnover Summary, April 2025, released June 4, 2025).
What this means for you: While the labor market shows resilience, manufacturing weakness and revised growth forecasts highlight how trade tensions and policy uncertainties are creating a cautious business climate—important context for households and investors navigating this shifting landscape.
Wednesday:
ADP Employment Report Signals Hiring Slowdown - The ADP National Employment Report showed U.S. private sector employment increased by just 37,000 jobs in May—the slowest pace since March 2023 and well below expectations of 110,000 to 114,000 jobs. Manufacturing shed 3,000 positions, consistent with the ISM contraction, while small businesses lost 13,000 jobs. Despite weak hiring, wage growth remained robust at 4.5% for job-stayers and 7% for job-changers. (Source: ADP National Employment Report, May 2025, released June 4, 2025).
Services Sector Contracts for First Time Since June 2024 - The Institute for Supply Management's Services PMI fell to 49.9 from 51.6, missing expectations of 52.0 and marking the first contraction since June 2024. New orders plunged to 46.4, while the prices index surged to 68.7—the highest since November 2022, reflecting tariff-related cost pressures. S&P Global's Services PMI rose to 53.7, creating confusion about the sector's true direction. (Source: Institute for Supply Management, Services ISM® Report On Business®, May 2025, released June 5, 2025; S&P Global, S&P Global US Services PMI, May 2025, released June 4, 2025).
What this means for you: The combination of weak hiring and service sector contraction suggests businesses are pulling back on growth investments while facing rising costs—a cautious stance that could signal broader economic challenges ahead.
Thursday:
Unemployment Claims Rise to Eight-Month High - The U.S. Department of Labor reported that initial claims for unemployment insurance rose to 247,000 for the week ended May 31, an increase of 8,000 from the prior week and well above the consensus estimate of 235,000. This marks the highest level in eight months and pushes the four-week moving average to 235,000—also a seven-month high. While 1.904 million Americans are currently receiving unemployment benefits, these figures still suggest a relatively stable labor market. (Source: U.S. Department of Labor, Unemployment Insurance Weekly Claims News Release, Week Ending May 31, 2025, released June 5, 2025).
Job Cuts Surge 47% Year-Over-Year - Challenger, Gray & Christmas, a leading employment consulting firm that tracks corporate layoff announcements, reported that U.S. employers announced 93,816 job cuts in May—up 47% from May 2024. Year-to-date layoffs have reached 696,309, an 80% increase from the same period last year. The services sector led May cuts with 22,492 layoffs, the highest since May 2020. Retail contributed 11,483 cuts, while technology companies announced 10,598 cuts. (Source: Challenger, Gray & Christmas, Inc., "Job Cuts Report," May 2025, released June 5, 2025).
What this means for you: The four-week moving average crossing above 235,000 is significant as it approaches the 250,000 threshold, a level I identified as a concern months ago. Combined with the 47% surge in layoffs, the trend suggests economic uncertainty is finally beginning to affect employment.
Friday:
Markets Rally on Misleading Jobs Headline - Markets surged on the Bureau of Labor Statistics' report that U.S. employers added 139,000 jobs in May, beating expectations of 125,000. However, buried deeper in the report were substantial downward revisions that told a different story. March and April job gains were revised down by a combined 95,000 positions, meaning the true net job creation was closer to 44,000. Had the BLS announced a gain of just 44,000 jobs with no revisions, the market reaction would likely have been dramatically different.
The underlying data painted an even grimmer picture. The household survey showed employment fell by 696,000—the largest decline since February. The number of newly unemployed Americans increased by 264,000 to 2.5 million, while the labor force participation rate dropped to 62.4%. Over 90% of job gains were concentrated in just healthcare and leisure sectors, while manufacturing shed 8,000 positions and professional services lost 18,000 jobs. (Source: U.S. Bureau of Labor Statistics, The Employment Situation - May 2025, released June 6, 2025).
What this means for you: Markets often react to headlines without fully digesting the details. The true employment picture—44,000 net jobs rather than 139,000—combined with widespread sectoral weakness suggests the labor market is deteriorating faster than the initial market reaction indicated.
By The Numbers
Employment Indicators
Employment data helps gauge whether consumers have jobs and money to spend. Consumer spending accounts for more than 70% of GDP.
| Indicator | Current Value | Status |
|---|---|---|
| Initial Claims for Unemployment | 247,000 | Caution |
| 4-Week Average of Initial Claims | 235,000 | Caution |
| Continuing Claims | 1.904M | Elevated |
| Unemployment Rate | 4.2% | Stable |
Note: Values above 250K for the 4-Week Average, combined with rising unemployment, would signal a weakening economy. Next unemployment report: July 3, 2025. Source: Department of Labor
Economic Growth (Real GDP)
| Period | Growth Rate | Status |
|---|---|---|
| Q3 2024 | 2.8% | Positive |
| Q4 2024 | 2.3% | Slowing |
| Q1 2025 | -0.2% | Contraction - Consider the average of Q1 & Q2 due to tariff distortions = 1.8% |
| Q2 2025 (est.) | 3.8% | Recovery - Consider the average of Q1 & Q2 due to tariff distortions = 1.8% |
GDP growth provides a broad measure of overall economic activity and signals whether the economy is expanding or contracting.
Source: Bureau of Economic Analysis; Estimate from Federal Reserve Bank of Atlanta
Inflation Measures (CPI Year-over-Year)
| Month | Rate | Trend |
|---|---|---|
| July | 2.89% | Improving |
| August | 2.53% | Improving |
| September | 2.44% | Improving |
| October | 2.60% | Deteriorating |
| November | 2.75% | Deteriorating |
| December | 2.89% | Deteriorating |
| January 2025 | 3.00% | Deteriorating |
| February | 2.82% | Improving |
| March | 2.39% | Improving |
| April | 2.31% | Improving |
| May (est.) | 2.40% | Deteriorating |
| June (est.) | 2.67% | Deteriorating |
Source: Bureau of Labor Statistics; May estimate from Federal Reserve Bank of Cleveland
Note: While inflation has moderated, new tariffs may cause temporary spikes in monthly data. Once tariffs have been in place for a full year, inflation should revert closer to the underlying trend.
Interest Rate Outlook
Current Fed Funds Rate: 4.25-4.50%
| Expected Cut Date | Amount | Projected Rate After Cut |
|---|---|---|
| September 17, 2025 | 0.25% | 4.00-4.25% |
| December 10, 2025 | 0.25% | 3.75-4.00% |
| March 18, 2026 | 0.25% | 3.50-3.75% |
| October 28, 2026 | 0.25% | 3.25-3.50% |
Note: Changes in monetary policy expectations reflect market participants' views on how the Fed will likely respond to shifts in inflation or employment.
Source: CME FedWatch Tool
Corporate Earnings Outlook (S&P 500 Estimates for 2025)
|
Date
|
Earnings Estimate
|
Trend
|
|---|---|---|
|
June 28, 2024
|
$276.29
|
|
|
Sept 30, 2024
|
$274.73
|
Deteriorating
|
|
Dec 31, 2024
|
$271.25
|
Deteriorating
|
|
Mar 31, 2025
|
$266.39
|
Deteriorating
|
|
Current
|
$256.09
|
Deteriorating
|
Source: S&P Dow Jones Indices
Market Valuation
|
Metric
|
Value
|
Assessment
|
|---|---|---|
|
Current S&P 500 P/E ratio
|
23.43
|
Expensive
|
|
Historical P/E (pre-1980)
|
14.0
|
|
|
Historical P/E (post-1980)
|
19.0
|
|
Note: Equity valuations remain expensive by historical standards.
Disclosure:
This material is provided by Todd Van Der Meid, MBA, CFP®, through Rhino Wealth Management, Inc., a Registered Investment Adviser, solely for informational purposes. It is not intended as investment, tax, legal, or accounting advice. Investors should consult qualified professionals before making financial decisions.
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