Wall Street is drifting as reports show a split economy

Reports on Thursday painted a murky picture. One said fewer workers filed for unemployment benefits last week than expected, while another suggested employers increased their payrolls more than expected last month.

Both are good news for workers and for the economy as a whole, which is slowing under the weight of much higher interest rates. But a strong labor market can also keep inflation under pressure, forcing the Fed to keep interest rates high.

On the other hand, manufacturing continues to be hit hard, in part by higher interest rates. Manufacturing contracted for the seventh straight month in May, according to a report from the Institute for Supply Management. The contraction was worse than the previous month and what economists had expected.

Based on the reports, traders were largely betting that the Fed would hold rates steady at its next meeting in two weeks. That would be the first time in more than a year that it hasn’t raised rates, and it’s something a Fed official hinted a day earlier that it could happen.

But traders are divided on whether the Fed will follow up a possible pause with another rate hike at its next meeting in July. High rates work to lower inflation by slowing the economy and hurting prices for stocks and other investments.

So far, the economy has held up despite such concerns thanks to a still strong labor market and resilient consumer spending. But reports from several retailers show that shoppers are feeling more pressure, across the income spectrum.

Dollar General fell 20.2% after reporting weaker earnings and revenues for the last quarter than analysts had expected. It said the economic environment was more challenging than expected and lowered its full-year financial forecasts. It tends to cater to lower income households.

Macy’s, which also owns Bloomingdale’s stores, was down 2% after lowering expectations for the year and trailing revenue and profit in the first quarter. It said shoppers began to pull back from March. That trend appears to be affecting retailers across the spectrum.

Nordstrom rose 0.5% after reporting a surprise profit for the last quarter. It said its customers, including many higher-income households, also felt pressure.

I think with the high-end customer, we’d say they’re pretty resilient, but they’re also cautious, CEO Erik Nordstrom told analysts in a conference call late Wednesday. And we really saw that across the board, that caution.

On the winning side was Hormel Foods, which rose 5.8% after a stronger-than-expected profit for the last quarter. The brands include Skippy, Spam and Applegate meats.

Several technology-oriented stocks also rose, helping to support the larger market. They’re seen as some of the biggest beneficiaries of lower interest rates, and their big market values ​​man, they weigh inordinately heavily on the S&P 500 and other indices. Apple rose 1% and Amazon gained 0.9%.

Gains for Big Tech stocks have helped the S&P 500 rise this year, even when most stocks are down. Some of the most popular moves have been in artificial intelligence.

Some of that enthusiasm cooled after C3.ai issued a revenue forecast for the fiscal year ahead that didn’t stun Wall Street as much as Nvidias did last week. C3.ai expects to earn between $295 million and $320 million, while analysts had expected about $317 million.

C3.ai was down 12.9%, though it’s still up more than 210% year-to-date. Nvidia rose 3.7%.

In the bond market, the yield on the 10-year government bond fell from 3.65% at the end of Wednesday to 3.61%. It helps set rates for mortgages and other loans that affect the strength of the economy.

The two-year Treasury yield, which moves more than expected for the Fed, fell from 4.40% to 4.37%.

In Europe, stock indices were slightly higher after a report showed inflation there took a positive turn, falling to 6.1%, though prices are still under pressure from shoppers who are yet to see any real relief in what they pay for food and other necessities.

The German DAX was up 1.1%, while the French CAC 40 was up 0.6%.

Asian markets were mixed as concerns remain about a weaker-than-expected recovery in the Chinese economy.

Hong Kong’s Hang Seng fell 0.1%, while Japan’s Nikkei 225 rose 0.8%.

AP Business Writer Yuri Kageyama and Matt Ott contributed.