This Week's Key US Economic Data

This week's US economic data are likely to pull back a bit, with the risk that the pullbacks are somewhat larger than consensus expects.  They might be trumpeted as supporting expectations of a slowdown in Q318 -- although this is not a foregone conclusion.

The Richmond Fed Mfg Index points to a decline in the July Mfg ISM.  Richmond correctly predicted the direction of Mfg ISM in each month so far this year.   The consensus estimate of a dip to a still-high 59.5 from 60.2 in June is in line with this forecast.

The evidence is somewhat mixed for Payrolls, but likely nets out to a somewhat slower pace than June's +213k m/m.  Manufacturing jobs could jump, given the decline in Initial Claims in early July.  Summer plant closings may have been fewer than normal, as auto and other companies built inventory ahead of the imposition of tariffs.  (Buying autos ahead of price hikes could result in July Motor Vehicle Sales coming in above the 17.1 Mn consensus.)  But, the ratcheting up in Continuing Claims from late-June through mid-July suggests a general slowdown in hiring, perhaps in fear of trade wars.  Furthermore, the clampdown on immigration could limit the availability of workers for seasonal jobs.  The consensus estimate of +190k for July Payrolls is in line with these considerations.  Payrolls averaged 211k m/m in Q218 and 218k in Q118.

Other parts of the Employment Report also risk being softer than consensus.  A steady 4.0% Unemployment Rate cannot be ruled out, given the higher level of Continuing Claims.  Consensus looks for a dip to 3.9%.  Calendar considerations suggest 0.1-0.2% m/m in Average Hourly Earnings (2.5-2.6% y/y), versus the consensus estimate of +0.3% (steady 2.7% y/y).

The evidence from the 4.1% (q/q, saar) Q218 Real GDP report does not rule another "4" handle in Q318.  While the approximately 0.5% pt contribution to Q218 GDP Growth from farm exports could unwind, Nonfarm Inventory Investment will likely snap back after falling in Q218.  (The decline may have been an offset to a Q118 buildup in anticipation of tariffs.)  Furthermore, hot weather should boost consumer spending on air conditioning in July.  (But, the GDP benchmark revisions and new seasonal factors look to have smoothed out consumption of electricity and natural gas, which is one reason why consumer spending was so strong in Q218.)  And, the uptrend in Core Durable Goods Orders (Nondefense Capital Goods Orders Excluding Civilian Aircraft) points to another quarter of strong capital spending. 

The latest evidence on inflation has softened.  The y/y for the Core PCE Deflator was 1.9% for Q218. This suggests either a downward revision to May's 2.0% or a 1.9% print for June in this coming Tuesday's report.  Friday's report on the University of Michigan Consumer Sentiment showed that longer-run 5-year inflation expectations -- important to the Fed -- fell back to a low 2.4% in July from 2.6% in June.