Summary

The S&P 500, Nasdaq Composite and Dow Jones Industrial Average set record closing highs on Thursday after the day’s economic data suggested the economy was picking up speed.

The ADP private sector employment report showed 253,000 jobs were added in May, well above the 185,000 estimated by economists polled by Reuters.

The report could signal a strong government payrolls report on Friday that includes hiring in both public and private sectors, which would cement expectations for an interest rate hike by the Federal Reserve in two weeks.

Forecasts are for 185,000 nonfarm jobs created in May. In addition to the ADP data, a separate report showed factory activity ticked up in May after two straight months of slowing.

San Francisco Federal Reserve Bank President John Williams said on Wednesday that while he sees three interest rate hikes this year as his baseline scenario, four rate increases would also be appropriate if the economy got an unexpected boost.

Fed Governor Jerome Powell, an influential policymaker, told CNBC that he expects three rate hikes this year.

Forecasts from Fed officials suggest that a median of two more hikes are planned before the end of the year.

Traders are currently pricing in an 88.9-percent chance of a quarter-percentage-point rate hike at the Fed’s June 13-14 meeting, according to Thomson Reuters data.

Gains were broad, with each of the 11 major S&P sectors on the plus side, led by gains in materials, with the materials index up 1.09 percent and healthcare, up 1.18 percent.

Deere’s shares were up 1.8 percent to close at $124.70 after the company said it would buy privately held German road construction company Wirtgen Group for $5.2 billion, including debt.

Hewlett Packard Enterprise fell 6.9 percent to $17.52 as the largest drag on the S&P 500 after the company reported a steep fall in quarterly revenue.

Palo Alto Networks rose 17.2 percent to a more than four-month high of $138.99 after the cybersecurity company’s profit forecast exceeded expectations.

About 6.89 billion shares changed hands in U.S. exchanges, compared with the 6.72 billion daily average over the last 20 sessions.

Day’s Economic Data

Factory activity increased during May, after slowing for two straight months. At the same time, private employers stepped up hiring, thereby reinforcing the idea that the economy is regaining strength after struggling at the beginning of the year. One likely outcome of the continuing economic strength is that it will encourage the Federal Reserve to raise interest rates later this month.

The Institute for Supply Management (ISM) said its index of national factory activity ticked up to a reading of 54.9 last month from 54.8 in April. The index hit a 2-1/2-year high of 57.7 in February amid optimism over President Trump’s pro-business policy proposals.

The index had declined for two consecutive months as concerns mounted in the business community that political scandals could derail the Trump administration’s economic agenda, including its push to cut corporate and individual taxes.

A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12 percent of the U.S. economy. The manufacturing recovery remains underpinned by the energy sector as steady increases in crude oil prices boost drilling activity, fueling demand for machinery.

The ISM survey’s new orders sub-index increased to 59.5 last month from 57.5 in April. A measure of factory employment jumped to a reading of 53.5 from 52.0 in April. Manufacturers of food and fabricated metals products reported difficulties finding qualified workers.

Manufacturers continued to steadily increase inventories and still viewed their customers’ stocks as too low, according to the survey. While raw materials prices rose for a 15th straight month, the pace of increase slowed sharply in May.

Although its numbers are traditionally not too reliable, the ADP National Employment Report indicated that private payrolls increased by 253,000 jobs last month, exceeding Street expectations for a gain of 185,000 jobs. Private payrolls rose by 174,000 jobs in April.

The ADP report is jointly developed with Moody’s Analytics and was released ahead of the Labor Department’s more comprehensive nonfarm payrolls report on Friday, which includes both public and private-sector employment.

In a third report on Thursday, the Labor Department said initial claims for state unemployment benefits rose by 13,000 claims to a seasonally adjusted 248,000 claims for the week ended May 27.

It was the 117th straight week that claims were below 300,000, a threshold associated with a healthy labor market. That is the longest such stretch since 1970, when the labor market was smaller.

A Labor Department official said claims for California and seven other states were estimated because of the Memorial Day holiday on Monday, which could have distorted the data. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose only 2,500 to 238,000 last week.

Meanwhile, the minutes of the Fed’s May 2-3 policy meeting, which were published last week, indicated that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory, “most participants” believed “it would soon be appropriate” to raise borrowing costs.

The Fed said on Wednesday in its Beige Book report of anecdotal information on business activity collected from contacts nationwide that labor markets continued to tighten from early April through late May. It also said “most” districts had cited worker shortages across a broadening range of occupations and regions.

A fourth report by global outplacement consultancy Challenger, Gray & Christmas indicated announced layoffs rose 41 percent to 51,692 in May. Nearly 40 percent of the job cuts were announced by Ford, according to the report.

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