While Friday's shockingly weak Q216 Real GDP print threw into doubt the underlying pace of US economic growth, this week's US economic data for July still suggest a pickup in Q316 growth.
This suggests that the latest stock market sell-off is overdone, as commentators attribute some of it to what was deemed weak US economic data this week.
a. Some of the stock market weakness may be what is typically been seen in August, as many market participants go on vacation.
The increase in Treasury yields yesterday was more consistent with the data.
a. Market participants attributed the increase in yields to an increase in Japanese yields. The latter may have been a reaction to the Japanese shift to a more aggressive fiscal policy. It underscores that perhaps the biggest threat to the US Treasury is a shift to more expansive fiscal policy with the new administration -- whether it be Clinton or Trump.
This week's US economic data:
1. While the Mfg ISM slipped to 52.6 in July from 53.1 in June, it remains above the 51.8 Q216 average.
a. The composition of the July Mfg ISM was strong. It shows New Orders and Production remaining at high levels.
2. July Motor Vehicle Sales surged to 17.9 Mn Units (saar) -- well above expectations and a new high for the move up.
a. Although Ford and GM sales fell y/y and were below expectations, these clearly were not a signal of widespread consumer weakness. Shifts in market share, difficult y/y comparisons (as their sales may have been very strong in July 2015), or y/y shifts in seasonal factors (which means that the standard y/y comparison is distorted) could have been responsible for their sales declines.
3. The +179k m/m July ADP Estimate is above the +149k m/m Q216 average for Nonfarm Payrolls.
a. To be sure, the ADP Estimate risks being too high relative to this coming Friday's July Payroll print. It is possible that the jump in June Payrolls lifted the July ADP Estimate, as the prior month's actual is an input into the current month's ADP Estimate.
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