Fed Hawks Get Support from Some But Not All of Today's US Economic Data

Fed hawks got support from some but not all of today's US economic data -- and even the supportive data were not particularly strong.  So, I don't think these data change the odds of a Fed rate hike in September.

Strong Durable Goods Orders -- Strong
1.  The underlying components of July Durable Goods Orders rose -- Ex Transportation +1.5% m/m and Nondefense Capital Goods Ex Civilian Aircraft +1.6% (2nd m/m increase in a row, as it followed +0.5% in June).  The latter (known as Core Durables) is a leading indicator of capital spending.

2.  The m/m gains support the hawk's contention that capital spending will pick up in H216.

3.   But, by themselves, the data do not suggest a strong pickup.

     a.  The levels of these orders were above their respective Q216 averages, but they remained below those of Q116 and Q415.  

     b.  Moreover,  Core Durable Shipments were -0.4% m/m in July, continuing their downtrend.  These are used by Commerce to construction Business Equipment Spending in GDP, so their decline shows that a pickup in equipment spending is yet to happen.

4.  Manufacturers' Durable Goods Inventories -- a small portion of Business Inventories -- rose 0.3% m/m, after declining over Q216.   This supports the idea that a bounce-back in Nonfarm Inventory Investment will boost Q316 GDP.  But, the question remains whether this bounce-back will be one-off and thus not a sustainable boost to GDP growth.

5.  These data are for July, which has seen stronger data print for many series.  It remains to be seen whether July is the start of a trend or whether August data will pull back.  The key August data are released next week.

Unemployment Claims Fall -- Strong
1.  Initial Claims dipped 1k w/w to 361k.  Continuing Claims fell 30k to 2.145 Mn.  They suggest little change in labor market conditions in August, but are not good predictors of speedups/slowdowns in Payrolls or m/m change in the Unemployment Rate. 

2.  Initial remains slightly above the 258k July average.

3.  Continuing is back to its average level since April, after popping up in the prior two weeks.

4.  Continuing is for the August Payroll Survey Week.  They are slightly above the 2.139 Mn in the July Survey Week.   

5.  Consensus for August Payrolls is now +164k (versus +217k in July).   Consensus for the August Unemployment Rate is 4.8% (versus 4.9% in July).

August Markit Services PMI Falls -- Weak
1.  The Market-IHS Services PMI fell to 50.9 from 51.4 in July.  It is down to its lowest level since February.

2.  The decline raises the risk that next week's August Non-Mfg ISM will fall, as well.  Both moved in the same direction in 6 of 7 months this year.