This Week's US Economic Data Likely To Suggest Modest US Econonomic Outlook

This week's key US economic data are likely to argue for only a modest pickup in GDP growth ahead.  Most of the data are likely to soften or print weaker than consensus.   But, Average Hourly Earnings risk speeding up.  The data should keep the Fed on a gradual tightening path, and the Treasury yield curve risks flattening further.   Nevertheless, stocks are likely to remain in an uptrend in May, particularly as strong earnings reports will probably continue.  The risk, however, is that the stock market rally will pause in early summer, unless progress is made on a Trump tax cut. 

       US Economic Data         Consensus           Prior           Q117 Average          Risk   
       April Mfg  ISM                56.4                      57.2              57.0                 Near Consensus

      ADP Estimate                   175k                     263k            269k                 Below Consensus

      Non-Mfg ISM                   55.8                      55.2             54.1                  Below Consensus

      Nonfarm Payrolls             185k                      98k              178k                 Below Consensus

      Unemployment Rate         4.6%                     4.5%            4.7%                Near Consensus

      Average Hourly Earnings  0.3%                    0.2%            0.2%                 Near Consensus

Real GDP Growth should speed up in Q217 from the weak 0.7% Q117 pace.  Monday's release of March Personal Income/Consumption/PCE Deflator should indicate a good-sized take-off point in Real Consumption, particularly since the nominal increase in March Consumption should be boosted in real terms by a decline in the PCE Deflator (Total and Core).  But, it is much too soon to have a good handle on the extent of a Q217 Real GDP speedup.   Real GDP Growth may speed up to only 1.5-2.0% in Q217, particularly since there are reasons why inventory investment may not bounce back -- retail store closings could reduce inventories further;  and, an inventory correction in the motor vehicle sector may very well continue.

Modest US economic growth could continue in H217, particularly if the Fed hikes again at the June FOMC Meeting or further talks up selling off its balance sheet.  The ECRI Leading Index already looks like it has peaked (see below). 


     ECRI Leading Index (level)
 
               7/15                   2/16                           11/16                 4/17