But, in truth, very little data regarding Q316 GDP have been released as yet. With the higher frequency US economic data released so far still mixed, the risk is that these model forecasts will come down as we move through the quarter. Moreover, some of the projected speedup stems from a bounce-back in Non-farm Inventory Investment, after it fell in Q216, which could be one-off. As a result, the ultimate strength of Q316 GDP or its sustainability should remain uncertain. So, the odds remain low that the Fed will hike rates at the September FOMC Meeting -- a positive for both stocks and Treasuries.
The two prominent pieces of US economic data for July were mixed -- a strong Employment Report but soft Retail Sales. There may be less than meets the eye for both. The strength of the Employment Report could have resulted from a further catch-up after the weak May jobs report. The weakness in Retail Sales could have been just volatility after a strong June. Even if department store sales are depressed in August, as demand for fall clothing is hurt by the hot weather in parts of the country, Q316 Consumption should be boosted by spending on air conditioning. And, apparel demand should rebound as the weather returns to normal in September and October.
The broadest high-frequency measure of US economic activity -- Initial Unemployment Claims -- hint at a moderation in economic growth in August after a speedup in June-July. They bottomed in the first half of July (to be sure, a period of difficult seasonal adjustment because of summer plant shutdowns), and are back to June levels in the first week of August:
Initial Unemployment Claims (level, 000s, monthly average)
August -- First Week 266
July 259 (weekly low of 252)
June 267
May 277
April 260
The ECRI Leading Index also suggests a moderation of growth in August, as it has come off its highs in the latest 2-3 weeks:
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