Risks in This Week's Key US Economic Data

The stock market will be focusing on key US macroeconomic data this week -- the July Mfg ISM and Employment Report.  The risk is for both to come in softer than consensus.  Such prints could be a positive for stocks, as they would argue against an early start to Fed tapering.  Away from the data, the market needs to see Congress hike the debt ceiling by the end of Monday.  A short-term moderate-sized hike would seem to be a likely outcome, as the two "infrastructure" proposals appear to be far from approval.

Consensus looks for a speedup in July Nonfarm Payrolls to +900k m/m from +850k in June.  The Claims data, however, don't suggest a jobs speedup.  The 4-week average of Initial going into the July Payroll Survey Week was about the same as it was going into the June Survey Week -- 387k versus 396k.  This suggests the pace of layoffs did not change much.  It is possible that some of the chip-shortage vehicle plant shutdowns could subtract from Payrolls this month.  And, the decline in Continuing Claims between Survey Weeks was smaller in July than in June, suggesting not as many people returned to work in July as in June. 

Consensus also looks for a 0.2% pt m/m decline in the Civilian Unemployment Rate to 5.8% in July from 5.9% in June.  The Insured Unemployment Rate, which is based on Continuing Claims, does not rule this out.  The Insured Rate edged down 0.1% pt for the 2nd month in a row.  There could be catchup by the Civilian Unemployment Rate after it rose in June, contrary to the Insured Rate.  But, there is a lot of uncertainty regarding the Labor Force Participation Rate.  If many people are encouraged to re-enter the labor market, the Participation Rate would increase and work to lift the Civilian Unemployment Rate if the re-entrants don't have jobs yet.

Consensus expects a moderate 0.3% m/m in July Average Hourly Earnings.  While the y/y would rise to 3.9% from 3.6% in June, this m/m pace would suggest the speedup in labor costs is not excessive yet.  The slowdown in the Q221 Employment Cost Index, reported last week, was encouraging in this regard.

Consensus sees a uptick in the Mfg ISM to 60.9 in July from 60.6 in June.  Evidence from other surveys is mixed.  Markit Mfg PMI, Empire State Mfg,  and Chicago PM rose, but Phil Fed Mfg Index fell.  None of these has tracked the m/m direction of the Mfg ISM reliably.  So, a decline cannot be ruled out.  The chip shortage problem could weigh on this Index, although the latter doe not tend to be dominated by the motor vehicle industry.