This week's US economic data should confirm moderate economic growth with little inflationary pressures in early Q317. The data will likely have little impact on stocks or Treasuries, although the evidence suggests a bullish tilt. While the evidence is mixed, and the best evidence missed last month, some payback for last month's miss is conceivable -- which would suggest softer-than-consensus prints for Mfg ISM and Payrolls. Also, some evidence raises the risk of an uptick in the Unemployment Rate. Average Hourly Earnings risks printing high on a m/m basis, but steady in the more important y/y.
Evidence regarding the direction of the m/m change in the July Mfg ISM is neither one-sided nor reliable. Monday's release of the July Chicago PM Index is expected to show a decline. The Chicago PM correctly predicted direction of the Mfg ISM in the past two months, but it has a mixed record in prior months this year as well as in the past two years' July. The Dallas Fed Mfg Index is due Monday, as well. Even if the Mfg ISM falls in July, however, the level should remain in the mid-50's, signaling strong manufacturing activity. The level was 57.8 in June.
(m/m change, points)
Mfg ISM Phil Fed Mfg Dallas Fed Mfg Richmond Fed Mfg
Jan17 +1.3 +2.1 +6.6 +4
Feb +1.7 +19.7 +2.4 +5
Mar -0.5 -10.5 -7.6 +5 x
Apr -2.4 -10.8 -0.1 -2
May +0.1 +16.8 +0.4 -19 x
Jun +2.9 -11.2 x -2.2 x +6
Jul na -8.1 na +7
Initial Claims did not correctly predict the speedup in June Private Payrolls. They suggest little speedup or slowdown in July's m/m change from June's +187k m/m, consistent with the consensus estimate of +180k. But, with Continuing Claims rising further in July, the risk is that Payrolls could slow by more than expected by consensus. Continuing rose 16k m/m in July, after climbing 29k in June.
The increase in Continuing Claims also raises the risk of a counter-consensus uptick in the Unemployment Rate to 4.5% from 4.4% in June. Consensus is for a decline to 4.3%. The m/m change in Continuing has correctly predicted the m/m direction of the Unemployment Rate each month so far this year.
(m/m change)
Continuing Claims (000s) Unemployment Rate (% pt)
Jan17 +2 +0.1
Feb -10 -0.1
Mar -41 -0.2
Apr -47 -0.1
May -60 -0.1
Jun +29 +0.1
Jul to-date +16 na
The ADP Estimate, on Wednesday, could be pulled up by the high June Payroll print -- just as the June ADP Estimate looks to have been pulled down by the weak May Payroll print. So, it may exaggerate the strength of July Payrolls. But, there is mixed evidence from the past few years regarding whether ADP tends to overestimate or underestimate Payrolls in July.
2nd Difference in
Initial Claims Private Payrolls (First Print)
Jan17 -19k +97k
Feb +2 -10
Mar +29 -138
Apr -29 +105
May +7 -47
Jun +3 +40 x
Jul-to-date 0 na
Average Hourly Earnings risk printing on the high side in July because of calendar considerations. A consensus-like 0.3% m/m increase, however, would keep the y/y steady at 2.4% -- showing no pickup in inflationary wage pressures.
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