Stocks Should Be Helped By US Economic Data This Week

Stocks should be helped by US economic data this week, as consensus looks for a pickup in some data and risk being too low on others.  Evidence of continuing strength in the economy may very well more than offset September's seasonal stock market weakness, which is so well known that it may not matter in any case.  The strong economy may even offset any negative impacts from trade negotiations, possible Mueller report, and FOMC Meeting this month.  And, the FOMC Statement may contain a positive market surprise, as I discussed last week.

Two of the this week's key US economic data risk printing above consensus.  The August Mfg ISM risks a counter-consensus increase, based on the higher Richmond Fed Mfg Index.  The latter correctly predicted the m/m direction of the Mfg ISM each month so far this year.  If the Mfg ISM rises, the risk is for an increase in the Non-Mfg ISM.  The two moved in the same direction in each of the past 4 months.

Two of the data risk printing near consensus.  Payrolls should speed up after the July slowdown, as both Initial and Continuing Claims resumed their decline in the past two months.  Even if Payrolls don't rise as much as the 190k consensus, they still would exceed the pace consistent with a steady Unemployment Rate.  The Unemployment Rate risks falling as a result, although it could hold steady if the Labor Force Participation Rate climbs.

Two of the data risk printing below consensus.   ADP Estimate will likely be below consensus, after it was stronger than Payrolls in July.   The August ADP Estimate reversed its July relationship to Payrolls in each of the past 3 years.  So, it should underestimate Payrolls in August after it overestimated them in July.  Average Hourly Earnings risk printing below consensus, based on calendar considerations.  The y/y would dip to 2.6% from 2.7% in July.

                                                          This Week's Key US Economic Data
                                           Consensus Estimate             Prior Month              Risk
Mfg ISM                                        57.7                                58.1                       59.0

ADP Estimate                              190k                                219k                      175k

Non-Mfg ISM                               56.8                                  55.7                      57.0

Payrolls                                        190k                                 157k                     190k                                      
Unemployment Rate                    3.8%                                  3.9%                3.8-3.9%

Avg Hourly Earnings                   0.2%                                  0.3%                      0.1%

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