Stocks Helped By This Week's Key Data?

The stock market should be helped by this week's key US economic data, which are expected to recover to some extent from the prior month's prints that had sparked fears of recession.  Bad weather may have contributed to the earlier weakness.  Consensus prints would be strong enough to suggest no more than a 25BP rate cut at the September 17-18 FOMC Meeting. 

Consensus expects a rebound in the August Mfg ISM to 47.8 in August from 46.8 in July.  Although in the right direction, it would continue to indicate sluggish manufacturing as both remain below the 48.8 Q224 average.  In contrast, consensus expects the Services ISM to edge up to  51.5 in August from 51.4 in July.  The latter did not seem to be impacted much by bad weather in July and both the August consensus and July actual are above the 50.7 Q224 average.  The stock market should be buoyed by this evidence of an improving economy outside manufacturing.

Consensus sees the August Employment Report recovering modestly from the weak July Jobs Report.  Nonfarm Payrolls are seen rising 163k m/m after +114k in July.  Both are below the 168k m/m Q224 average.  The Nonfarm Average Workweek also is expected to recover a bit, to a trend 34.3 Hours from 34.2 Hours in July.  Total Hours Worked should rise by enough to put them above the Q224 average.

Consensus also expects the Unemployment Rate to edge down to 4.2% from 4.3%, remaining well above the 3.6% Q224 average.  Fed Chair Powell already pointed out that the increase in the Rate was largely a result of stronger labor force growth.  So, the high Unemployment Rate may be more a signal of greater capacity in the economy to grow, rather than a sharp weakening in the labor market.  Average Hourly Earnings are seen returning to their 0.3% m/m trend from 0.2% in July.  The y/y still would rise to 3.7% from 3.6% in July, but stay below the 3.9% Q224 average.  The Unemployment Claims are mixed for August, with lower Initial Claims signalling fewer layoffs, but a speedup in Continuing Claims suggesting soft hiring.  

Earlier in the week, consensus expects the July JOLTS data to confirm a softer labor market with a dip in Job Openings.  This could be impacted by bad weather, however, and conceivably tick up as the latter may have prevented job openings from being filled.  An uptick should be ignored for this reason.

Last week's Personal Income Report showed a strong consumer and moderate inflation, arguing for a 25 BP cut at the September FOMC Meeting.  The consumer began Q324 on a strong note, with Real Consumption 3.0% (annualized) above the Q224 average.  And, the 2.5-2.6% y/y for Total and Core PCE Deflator are not far above the Fed's 2.0% target, allowing the Fed to act to sustain economic growth.  

The Atlanta Fed model's estimate of Q324 Real GDP Growth was revised up to 2.5% from 2.0% as a result of these and other recent data.  This growth rate, if it holds up as more data come in, would be slower than the 3.0% Q224 pace but above the Fed's 1.7-2.0% estimate of longer-run growth.  It  argues against recession and for only a gradual pace of policy easing, the latter meant to ensure a continuation of moderate economic growth.