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245 matches for " ism manufacturing":
All the regional PMI and Fed business surveys we follow suggest that today's national ISM manufacturing report for November will be weaker than in October
The obsession of markets and the media with the industrial sector means that today's ISM manufacturing survey will be scrutinized far more closely than is justified by its real importance.
In one line: Bottoming, but still very weak.
In one line: The appearance of normalcy is misleading.
In one line: Grim; no sign of hitting bottom despite better regional surveys.
In one line: Disappointing but a rebound is coming.
We will have a much better idea of the pace of domestic demand growth after today's wave of economic data, though the report which will likely generate the most attention in the markets--ADP employment--tells us nothing of value. The headline employment number in the report is generated by a regression which is heavily influenced by the previous month's official data.
We're expecting the April ISM report today to bring yet more evidence that the manufacturing cycle is peaking, though we remain of the view that the next cyclical downturn is still some way off.
In one line: Disconnected from the rebound in China's surveys by the trade war.
In one line: Bouncing along the bottom; no real recovery in sight.
In one line: Really, it's much worse than it looks.
In one line: Orders surging but employment lagging far behind.
In one line: Yet more evidence that the economy was less-bad in May than in April.
In one line: The manufacturing recovery continues, but momentum is slowing.
In one line: Ouch. The manufacturing recession continues.
In one line: Less terrible, but still terrible nonetheless.
In one line: Good news, but it won't last.
In one line: The details are significantly worse than the headline.
In one line: The calm before the storm.
The rebound in the ISM manufacturing index was a relief, after the sharp drop in October, though the strength in last week's Chicago PMI meant that it wasn't a complete surprise.
Under normal circumstances, sustained ISM manufacturing readings around the July level, 54.2, would be consistent with GDP growth of about 2% year-over-year.
Last week's strong ISM manufacturing survey for November likely will be followed by robust data for the non-manufacturing sector today, but the headline index, like its industrial counterpart, likely will dip a bit.
August's 14-year high in the ISM manufacturing index, reported yesterday, clearly is a noteworthy event from a numerology perspective, but we doubt it marks the start of a renewed upward trend.
The startling jump in supplier delivery times in the June ISM manufacturing survey, to a 14-year high, was due--according to the ISM press release--to disruptions to steel and aluminum supplies, transportation problems and "supplier labor issues".
...Third quarter growth was revised up sharply and the prospects for fourth quarter consumption improved substantially. Less positively, the first signs of faltering capex in the wake of the plunge in oil prices emerged in the macro data, and the ISM manufacturing index began to reverse its run of absurd, seasonally-assisted, "strength".
It probably would be wise to view the increase in the ISM manufacturing index in December with a degree of skepticism. The index is supposed to record only hard activity, but we can't help but wonder if some of the euphoria evident in surveys of consumers' sentiment has leaked into responses to the ISM. That said, the jump in the key new orders index-- which tends to lead the other components--looked to be overdue, relative to the strength of the import component of China's PMI.
When the Fed raised rates in December, it subverted one of its own long-standing conventions by hiking with the ISM manufacturing index below 50. The December survey, released just 15 days before the meeting, showed the headline index slipping to 48.6, the third straight sub-50 reading. It has since been revised down to 48.0, the lowest reading since June 2009.
The elevated readings from the ISM manufacturing survey this year have not been followed by rapid growth in output. The headline ISM averaged 55.8 in the second quarter, a solid if unspectacular reading. But output rose by only 1.2% year-over-year, and by 1.4% on a quarterly annualized basis.
Today's September ISM manufacturing survey is one of the most keenly-awaited for some time. Was the unexpected plunge in August a one-time fluke--perhaps due to sampling error, or a temporary reaction to the Gulf Coast floods, or Brexit--or was it evidence of a more sustained downshift, possibly triggered by political uncertainty?
Core durable goods orders have not weakened as much as implied by the ISM manufacturing survey, as our first chart shows, but it is risky to assume this situation persists.
We were happy to see the small increase in the March ISM manufacturing index yesterday, following better news from China's PMIs, but none of these reports constitute definitive evidence that the manufacturing slowdown is over.
The dreadful September ISM manufacturing survey reinforces our view that the sector will be in recession for the foreseeable future, and that both business capex and exports are on the verge of a serious downturn.
Some shoes never drop. But it would be unwise to assume that the steep plunge in manufacturing output apparently signalled by the ISM manufacturing index won't happen, just because the hard data recently have been better than the survey implied.
We were terrified by the plunge in the ISM manufacturing export orders index in August and September, which appeared to point to a 2008-style meltdown in trade flows.
We'd be very surprised to see a material weakening in today's March ISM manufacturing survey. The regional reports released in recent weeks point to another reading in the high 50s, with a further advance from February's 57.7 a real possibility.
Today brings a raft of data with the potential to move markets, but we're far from convinced that the two most closely-watched reports--ADP employment and the ISM manufacturing survey--will tell us much about the future.
The case for believing that August's unexpected 14-year high in the ISM manufacturing index was a fluke is pretty straightforward, and it has both short and medium-term elements.
We have lost count of the number of times the drop in the ISM manufacturing survey, in the wake of the plunge in oil prices, was a harbinger o f recession across the whole economy. It wasn't, because the havoc wreaked in the industrial economy by the collapse in capital spending in the oil sector was contained.
Recent export performance has been poor, but the export orders index in the ISM manufacturing survey-- the most reliable short-term leading indicator--strongly suggests that it will be terrible in the fourth quarter.
The first major data release of 2016 showed manufacturing activity slipping a bit further at the end of last year, but we doubt the underlying trend in the ISM manufacturing index will decline much more. Anything can happen in any given month, especially in data where the seasonal adjustments are so wayward, but the key new orders and production indexes both rose in January; almost all the decline in the headline index was due to a drop in the lagging employment index.
Today's payroll number is completely irrelevant, because 97% of the 10.2M increase--so far--in initial jobless claims from their pre-coronavirus level came after the employment survey was conducted, between Sunday March 8 and Saturday March 14.
Today is all about beans. Specifically, soybeans, and more specifically, just how many of them were exported in August. This really matters, because if soybean exports in August and September remained close to their hugely elevated July level, the surge in exports relative to the second quarter will contribute about one percentage point to headline GDP growth.
We were happy to see upside surprises from both sides of the domestic economy yesterday, but we doubt that the August readings from both the Conference Board's consumer confidence survey and the Richmond Fed business survey can hold.
The rate of growth of Covid-19 cases outside China appears to have peaked, for now, but we can't yet have any confidence that this represents a definitive shift in the progress of the epidemic.
It's pretty clear now that the President is not a reliable guide to what's actually happening in the China trade war, or what will happen in the future.
Orders for non-defense capital goods, excluding aircraft, have risen in six of the past seven months. In the fourth quarter, orders rose at a 4.7% annualized rate, in contrast to the 5.3% year-over-year plunge in the first half of the year.
The closer we look at the startling surge in imports in the fourth quarter, the more convinced we become that it was due in large part to a burst of inventory replacement following the late summer hurricanes.
After a busy week of data, and a holiday weekend ahead, it's worth stepping back a bit and evaluating the arguments over the timing of the next Fed hike. The first question, though, is whether the data will support action, on the Fed's own terms. The April FOMC minutes said: "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".
Yesterday's raft of data had no net impact on our forecast for second quarter GDP growth, which we still think will be about 21⁄4%.
Today's wave of data will bring new information on the industrial sector, consumers, the labor market, and housing, as well as revisions to the third quarter GDP numbers.
Net foreign trade made a positive contribution of 0.2 percentage points to GDP growth in the second quarter, matching the Q1 performance.
We argued in the Monitor on Friday--see here--that the Fed likely will increase the pace of its Treasury purchases, in order to ensure that the wave of supply needed to finance the next Covid relief bill does not drive up yields.
The April international trade numbers were startlingly, and surprisingly, horrible. The deficit in trade in goods leaped by $6.2B -- the biggest one-month jump in two years -- to $67.1B, though the headline damage was limited by a sharp narrowing in the oil deficit, thanks to lower prices, and a rebound in the aircraft surplus.
The tax plan released by the administration yesterday was so thoroughly leaked that it contained no real surprises. The border adjustment tax is dead -- not that we thought it would have passed the Senate in any event -- and the centerpiece is a proposed cut in the corporate income tax rate to 15% from 35%.
Markets often greet the monthly international trade numbers with a shrug.
A third outright decline in the past four months seems a decent bet for today's August durable goods orders, thanks to the malign influence of the downward trend in orders for civilian aircraft. The global airline cycle is maturing, and orders for both Boeing and Airbus aircraft have been slowing for some time.
Today brings a ton of data, as well as an appearance by Fed Chair Powell at the Economic Club of New York, in which we assume he will address the current state of the economy and the Fed's approach to policy.
House Democrats and Senate Republicans are so far apart on both the structure and the size of the next Coronavirus relief package that it's hard to see a bill passing Congress in less than a couple weeks or so, and it could easily take longer.
If we're right with our forecast that real consumers' spending rose by just 0.1% month-to-month in February -- enough only to reverse January's decline -- then it would be reasonable to expect consumption across the first quarter as a whole to climb at a mere 1.2% annualized rate.
Yesterday's October labour market data in Mexico showed that the adjusted unemployment rate rose a bit to 3.4%, from 3.3% in September.
We aren't convinced by the idea that consumers' confidence will be depressed as a direct result of the rollover in most of the regular surveys of business sentiment and activity.
Net foreign trade was a drag on GDP growth in the second quarter, subtracting 0.7 percentage points from the headline number.
Data released this week have confirmed that the Mexican economy is struggling and that the near-term outlook remains extremely challenging.
The Fed will soon have to step in to try to put a firebreak in the stock market.
With almost two thirds of the nominal data for the third quarter now available, we can make a stab at the contribution of inventories to real GDP growth.
A grim-looking headline durable goods orders number for April seems inevitable today, given the troubles at Boeing.
As we reach our deadline--4pm eastern time--media reports indicate that a debt ceiling agreement is close.
Today brings a wave of data, some brought forward because of Thanksgiving. We are most interested in the durable goods orders report for October, which we expect will show the upward trend in core capital goods orders continues.
Hot on the heels of yesterday's grim-looking-- temporarily--existing home sales numbers for May, we see upside risk for today's new sales data.
Yesterday's announcement that the administration plans to imposes tariffs worth about $60B per year -- thatìs 0.3% of GDP -- on an array of imports of consumer goods from China is a serious escalation.
The 17-point leap in the Richmond Fed index for October, reported yesterday, was startlingly large.
We have been pleasantly surprised by the recent Redbook chainstore sales numbers.
This is the final Monitor before we hit the beach for two weeks, so want to highlight some of the key data and event risks while we're out. First, we're expecting little more from the FOMC statement than an acknowledgment that the labor market data improved in June. After the May jobs report, the FOMC remarked that "...the pace of improvement in the labor market has slowed".
The federal debt ceiling was re-imposed last week, with no fanfare, and no reaction in the markets. All eyes were focussed instead on the Fed's rate hike and Chair Yellen's press conference.
It has become pretty clear over the past couple of weeks that Hillary Clinton will be the next president, so it's now worth thinking about how fiscal policy will evolve over the next couple of years.
The New York Fed tweeted yesterday that "Housing market fundamentals appear strong.
With Fed officials now in pre-FOMC meeting blackout mode, this week will not bring a repeat of Friday's confusion, when the New York Fed felt obligated to issue a clarification following president William's speech on monetary policy close to the zero bound.
All the regional PMIs and Fed business surveys are volatile in the short-term, so observations for single months need to be viewed with due skepticism.
While we were out last week, market nervousness over the Covid-19 outbreak intensified, though most key indicators of the spread of the infection continued to improve.
A widening core trade deficit is the inevitable consequence of a strengthening currency and faster growth than most of your trading partners. Falling oil prices have limited the headline damage by driving down net oil imports, but the downward trend in core exports since late 2014 has been steep and sustained, as our first chart shows. The deterioration meant that trade subtracted an average of 0.3 percentage points from GDP growth in the past three quarters.
We see significant upside risk to today's headline durable goods orders numbers for April.
We're expecting to learn today that the economy expanded at a 2.6% annualized rate in the first quarter, rather better than we expected at the turn of the year--our initial assumption was 1-to-2%--and above the consensus, 2.3%.
After three days of jaw-dropping actions from President Trump, the position seems to be this: The U.S. will apply 15% tariffs on imported Chinese consumer goods, rather than the previously promised 10%, effective in two stages on September 1 and December 15.
Three of today's economic reports, all for December, could move the needle on fourth quarter GDP growth. Ahead of the data, we're looking for growth of 1.8%, a bit below the consensus, 2.2%, and significantly weaker than the Atlanta Fed's GDPNow model, which projects 2.8%.
The headline May durable goods orders numbers today probably will look very strong, with the odds favoring a much bigger increase than the 10.1% consensus; we'll come back to that.
The June durable goods, trade and inventory reports today, could make a material difference to forecasts for the first estimate of second quarter GDP growth, due tomorrow.
You could be forgiven for being alarmed at the 1.5% decline in the stock of outstanding bank commercial and industrial lending in the fourth quarter, the first dip since the second quarter of 2017.
The sluggishness of existing home sales in recent months, as exemplified by yesterday's report of a small dip in June, is due entirely to a sharp drop in the number of cash buyers.
The Redbook chainstore sales survey today is likely to give the superficial impression that the peak holiday shopping season got off to a robust start last week.
New home sales surprised to the upside in May, rising 6.7% to 689K, a six-month high.
I need to ask your indulgence today, because the release of the durable goods and advance international trade reports coincides with my elder daughter's college graduation ceremony.
The unexpectedly robust 128K increase in October payrolls--about 175K when the GM strikers are added back in--and the 98K aggregate upward revision to August and September change our picture of the labor market in the late summer and early fall.
Our hopes of another solid increase in payrolls in July were severely dented by yesterday's ADP report, showing that private payrolls rose only 167K in July.
We had hoped that the statistical problems which have plagued the initial estimates of August payrolls in recent years had faded, but Friday's report suggests our judgement was premature.
October payrolls were stronger than we expected, rising 128K, despite a 46K hit from the GM strike.
Productivity likely rose by 1.7% last year, the best performance since 2010.
It's hard to overstate the geopolitical importance of Friday's assassination of Qassim Soleimani, architect of Iran's external military activity for more than 20 years and perhaps the most powerful man in the country, after the Supreme Leader.
The simultaneous decline in both ISM indexes was a key factor driving markets to anticipate last week's Fed easing.
We're very comfortable with the idea that the coronavirus is a broad deflationary shock to the U.S. economy.
In the wake of yesterday's ADP report, which showed private payrolls up 250K in December, we have revised our forecast for today's official headline number up to 240K from 210K.
We have argued consistently for some time that the next year will bring a clear acceleration in U.S. wage growth, because the unemployment rate has fallen below the Nairu and a host of business survey indicators point to clear upward wage pressures. Nominal wage growth has been constrained, in our view, by the unexpected decline in core inflation from 2012 through early 2015, which boosted real wage growth and, hence, eased the pressure from employees for bigger nominal raises.
The comforting 183K increase in February private payrolls reported by ADP yesterday likely overstates tomorrow's official number.
The apparently imminent imposition of 25% tariffs on imported steel and 10% on aluminum does not per se constitute a serious macroeconomic shock.
We think today's February payroll number will be reported at about 140K, undershooting the 175K consensus.
The September PMI surveys in Mexico continue to bolster our argument for a subpar recovery in the second half of the year.
We have argued for a while that China and the U.S. will not reach a comprehensive trade deal until after the next election.
With the FOMC decision now just seven days away, the forcefulness of recent Fed speakers has led many analysts to argue that only a spectacularly bad payroll report, or an external shock, can prevent a rate hike next week. External shocks are unpredictable, by definition, and we think the chance of a startlingly terrible employment report is low, though substantial sampling error does occasionally throw the numbers off-track.
A core element of our relatively upbeat macro view before the implementation of fiscal stimulus under the new administration is that the ending of the drag from falling capex in the oil sector will have quite wide, positive implications for growth. The recovery in direct oil sector spending is clear enough; it will just track the rising rig count, as usual.
In one line: Grim, but probably overstates payroll weakness.
In one line: Surging employment index means payroll weakness likely will be temporary
All the signs are that ADP will today report a solid increase in February private payrolls; our forecast is 200K, but if you twist our arms we'd probably say the mild weather last month across most of the country points to a bit of upside risk.
We've been hearing a good deal about the slowdown in the rate of growth of consumer credit in recent months, and with the April data due for release today, it makes sense now to reiterate our view that the recent numbers are no cause for alarm.
We would be quite surprised if today's official payroll number exceeded the 135K ADP reading; a clear undershoot is much more likely.
The final Monitor before our summer break is characterized by great uncertainty.
Unless Boeing received a huge aircraft order on November 30, we can now be pretty sure that most of October's 4.6% leap in headline durable goods orders reversed last month. Through November 29, Boeing booked orders for 34 aircraft, compared to 85 in October. Moreover, the bulk of the orders were for relatively low value 737s, whereas the October numbers were boosted by a surge in orders for 787s, whose list price is about three times higher.
We raised our forecast for today's January payroll number after the ADP report, to 200K from 160K.
We very much doubt that Fed Chair Powell dramatically changed his position last week because President Trump repeatedly, and publicly, berated him and the idea of further increases in interest rates.
Our composite index of employment indicators, based on survey data and the official JOLTS report, looks ahead about three months.
After a week--yes, a whole week!--with no significant new developments in the trade war with China--it's worth stepping back and asking a couple of fundamental questions, which might give us some clues as to what will happen over the months ahead.
The startling 5.5% drop in auto sales in March left sales at just 16.5M, well below the 17.4M average for the previous three months and the lowest level since February last year. A combination of the early Easter, which causes serious problems for the seasonal adjustments, and the lagged effect of the plunge in stock prices in January and February, likely explains much of the decline.
The rate of growth of third quarter consumers' spending was revised up by 0.3 percentage point to 3.3% in the national accounts released yesterday.
The stage is set for the Fed to ease by 25bp today, but to signal that further reductions in the funds rate would require a meaningful deterioration in the outlook for growth or unexpected downward pressure on inflation.
On the face of it, the February consumer spending data, due today, will contradict the upbeat signal from confidence surveys. The dramatic upturn in sentiment since the election is consistent with a rapid surge in real consumption, but we're expecting to see unchanged real spending in February, following a startling 0.3% decline in January.
Something of a debate appears to be underway in markets over the "correct" way to look at the coronavirus data.
The chance of a self-inflicted, unnecessary weakening in the economy this year, and perhaps even a recession, has increased markedly in the wake of the president's announcement on Friday that tariffs will be applied to all imports from Mexico, from June 10.
The substantial gap between the key manufacturing surveys for the U.S. and China, relative to their long-term relationship, likely narrowed a bit in December.
While we were out, the data showed that consumers' confidence has risen very sharply since the election, hitting 15-year highs, but actual spending has been less impressive and housing market activity appears poised for a marked slowdown.
We have focussed on the role of the trade war in depressing U.S. stock prices in recent months, arguing that the concomitant uncertainty, disruptions to supply chains, increases in input costs and, more recently, the drop in Chinese demand for U.S. imports, are the key factor driving investors to the exits.
The next nine weeks bring three jobs reports, which will determine whether the Fed hikes again in September, as we expect, and will also help shape market expectations for December and beyond.
In the wake of April's 0.2% increase in real consumers' spending, and the upward revisions to the first quarter numbers, we now think that second quarter spending is on course to rise at an annualized rate of about 3.5%.
The March employment report didn't tell us what we really want to know. The underlying trend in wage growth remains obscured by the calendar quirk which depresses reported hourly earnings when the 15th of the month--pay day for people paid semi-monthly -- falls after the payroll survey week.
Chair Yellen remains as committed as ever to the idea that the tightening labor market will eventually push up inflation, but the unexpectedly weak core CPI readings for the past four months have complicated the picture in the near-term.
While we were out, most of the core domestic economic data were quite strong, with the exception of the soft July home sales numbers and the Michigan consumer sentiment survey.
The advance indicators of July payrolls are wildly contradictory, so you should be prepared for anything from a consensus-busting jump to a renewed outright drop, in both Friday's official numbers and today's ADP report.
We were worried about downside risk to yesterday's ADP employment measure, but the 67K increase in November private payrolls was at the very bottom of our expected range.
We aren't in the business of trying to divine the explanation for every twist and turn in the stock market at the best of times, and these are not the best of times.
Today's December payroll number was a tricky call even before yesterday's remarkably strong ADP report, showing private payrolls soaring by 271K.
The ADP employment report was on the money in October at the headline level--it undershot the official private payroll number by a trivial 6K--but the BLS's measure was hit by the absence of 46K striking GM workers from the data.
It's not our job to pontificate on the merits, or otherwise, of the tax cut bill from a political perspective.
The fundamentals underpinning our forecast of solid first half growth in consumers' spending remain robust.
Today's ADP employment report for December ought to show private payrolls continue to rise at a very solid pace
The number of coronavirus cases continues to increase, but we're expecting to see signs that the number of new cases is peaking within the next two to three weeks.
We keep hearing that the auto market is struggling, but that idea is not supported by the recent sales numbers.
The January durable goods numbers, viewed in isolation, were not terrible.
Don't worry about the weakness of the recent retail sales numbers. The three straight 0.1% month-to- month declines tell us nothing about the underlying state of the consumer.
Manufacturing is not in recession, yet, despite the reams of gloomy analysis of the sector, including our own.
Recent industrial data for Mexico point to renewed upside risks for GDP growth, despite the likely headwind to consumption from high inflation and depressed confidence.
Inflation in Brazil ended 2018 under control, despite slightly overshooting expectations.
We're not expecting drama from Chair Yellen's semi-annual Monetary Policy Testimony in the Senate today. Dr. Yellen will want to keep alive the idea of a rate hike next month, but she will not signal that action is likely, given the continuing lack of clarity on the path of fiscal policy.
This week brings a wave of data on all aspects of the economy, bar housing. By the end o f the week, we'll have a better idea of the shape of consumers' spending, the industrial sector and the inflation picture, and estimates of third quarter GDP growth will start to mean something.
While we were out, most of the action was on the political front, while the economic data mostly were unexciting.
Here's the bottom line: U.S. businesses appear to have over-reacted to the impact of the trade war in their responses to most surveys, pointing to a serious downturn in economic growth which has not materialized.
Mexican industrial production is slowly improving, and further good numbers are likely in coming months.
The rate of growth of nominal core retail sales substantially outstripped the rate of growth of nominal personal incomes, after tax, in both the second and third quarters.
The September core CPI was held down by prescription drug prices, which fell by 0.6%, and vehicle prices, which fell by 0.4%.
The absence of an internationally agreed set of guidelines for easing lockdowns means that such decisions ultimately are political in nature.
Over the past 18 months, the year-over-year rate of growth of manufacturing output has swung from minus 2.1% to plus 2.5%.
The rate of growth of real personal incomes is under sustained downward pressure, slowing to 2.1% year-over-year in December from 3.4% in the year to December 2015. In January, we think real income growth will dip below 2%, thanks to the spike in the headline CPI, reported Wednesday. Our first chart shows that the 0.6% increase in the index likely will translate into a 0.5% jump in the PCE deflator, generating the first month-to-month decline in real incomes since January last year.
The headline retail sales numbers for October looked good, but the details were less comforting.
We are not worried about the reported drop in April manufacturing output, which probably will reverse in May.
The New York Times called the China trade agreement reached Friday "half a deal", but that's absurdly generous.
The two marquee economic reports today, covering May retail sales and industrial production, will capture the initial rebound after the economy hit bottom sometime in mid-April.
The recent increases in single-family housing construction are consistent with the rise in new home sales, triggered by the substantial fall in mortgage rates over the past year.
Normal service appears to have resumed in August, with payrolls rising by 201K, very close to the 196K average over the previous year.
Last fall and winter, when the weather was warmer than usual--thanks largely to El Nino--construction employment rocketed. Between October and March, job gains averaged 36K, compared to an average of 20K per month over the previous year. When these strong numbers began to emerge, we expected to see a parallel acceleration in construction spending.
Yesterday's FOMC statement was a bit more upbeat on growth than we expected, with Janet Yellen's final missive describing everything -- economic growth, employment, household spending, and business investment -- as "solid".
The outcome of the Trump-Xi meeting at the G20 summit was as good as we expected.
We're expecting a strong-looking 225K increase in the May ADP measure of private sector payroll growth, due today. The consensus forecast is 180K.
We're expecting a 180K increase in today's May headline payroll number, a bit below the underlying trend--200K or so--for the second straight month.
The Fed shifted its stance significantly in June, so we're expecting only trivial changes in today's statement.
The underlying U.S. consumer story, hidden behind a good deal of recent noise, is that the rate of growth of spending is reverting to the trend in place before last year's tax cuts temporarily boosted people's cashflow.
The worst is over for manufacturers, we think. The three major forces depressing activity in the sector last year--namely, the strong dollar, the slowdown in China, and the collapse in capital spending in the oil sector--will be much less powerful this year.
In the wake of the soft-looking ADP employment report released on Wednesday, the true consensus for today's official payroll number likely is lower than the 230K reported in the Bloomberg survey. As we argued in the Monitor yesterday, though, we view ADP as a lagging indicator and we don't use it is as a forecasting tool.
Today's March ADP employment report likely will catch the leading edge of the wave of job losses triggered by the coronavirus.
The entire 10.5% increase in personal income in April, reported on Friday, was due to the direct stimulus payments made to households under the CARES Act.
All eyes today will be on the core PCE deflator for January, following the unexpectedly large 0.3% increase in the core CPI.
In the absence of an unexpected surge in auto sales or a sudden burst of unseasonably cold weather, lifting spending on utilities, fourth quarter consumption is going to struggle to rise much more quickly than the 2.1% annualized third quarter increase.
On the heels of yesterday's benign Q3 employment costs data--wages rebounded but benefit costs slowed, and a 2.9% year-over-year rate is unthreatening--today brings the first estimates of productivity growth and unit labor costs.
We're happy that ADP beat our forecast yesterday-- an extra 250K jobs doesn't change the world, but it's better than the opposite--and we're lifting our forecast for tomorrow's payroll numbers in response.
Today brings a raft of data which mostly will look quite positive but will do nothing to assuage our fears over a sharp slowdown in growth in the fourth quarter.
We expect to see a 70K increase in October payrolls today.
The drop in jobless claims to 3,839K in the week ended April 25, from 4,442K in the previous week, leaves the data still terrible, but markedly less terrible than at the 6,867K peak in late March.
A quick rebound in growth, after the slowdown to a reported 2.6% in the fourth quarter, is unlikely.
If you apply a seasonal adjustment to a seasonally adjusted series, it shouldn't change. When you apply a seasonal adjustment to the U.S. GDP numbers, they do change. First quarter growth, reported Friday at just 0.7%, goes up to 1.7%, on our estimate.
The FOMC meeting today will be a non-event from a policy perspective but we are very curious to see what both the written statement and the Chair will have to say about the unexpected strength of the economy in the first quarter.
The weekly jobless claims numbers tend to be choppy around the turn of the year, and our take on the seasonal adjustments points to a clear increase in today's report, for the week ended January 11, even without the impact of the government shutdown.
The over-hyped mystery of the gap between the hard and soft data in the industrial economy has largely resolved itself in recent months.
Upbeat survey data and relatively resilient consumer spending numbers indicate that the Mexican economy is in good shape, despite a marginal slowdown in most of Q2.
The Fed yesterday acknowledged clearly the new economic information of recent months, namely, that first quarter GDP growth was "solid", with Chair Powell noting that it was stronger than most forecasters expected.
For most of the decade since the whole-economy average hourly earnings numbers were first published, the year-over-year rate of increase has run faster than the ECI measure of private sector wages and salaries, excluding incentive-paid occupations. But in the first quarter of this year, the ECI measure rose 2.5% year-over-year, the fastest increase in six years, while hourly earnings rose 2.3%. That difference might not sound like much, but it matters a good deal when put into context.
After a slew of media reports in recent days, we have to expect that the president will today announce that Fed governor Jerome Powell is his pick to replace Janet Yellen as Chair.
March auto sales were much weaker than expected, falling by 5.5% month-to-month to a 25-month low, 16.5M. The average for the previous six months was 17.8M. The sudden drop in March likely was driven in large part by the huge snowstorm which tracked across the Northeast in the middle week of the month, so we think a decent rebound in April is a good bet.
If recent labor market trends continue, the four employment reports which will be released before the June FOMC meeting will show the economy creating about 1.1M jobs, pushing the unemployment rate down to 5.3%, almost at the bottom of the Fed's estimated Nairu range, 5.2-to-5.5%.
The 253K increase in May private payrolls reported by ADP yesterday was some a bit stronger than our 225K forecast. Plugging the difference between these numbers into our payroll model generates our 210K forecast for today's official number.
The May auto sales numbers probably will be released just after our deadline at 4pm eastern time today, but all the signs are that a hefty rebound will be reported after April's plunge to just 8.6M, not much more than half the pre-Covid level.
The number of Covid-19 cases is increasing at a faster rate, though 89% of the new cases reported Saturday were in China, South Korea, Italy and Iran.
Don't bet the farm on today's October payroll numbers, which will be hopelessly--and unpredictably-- compromised by the impact of hurricanes Florence and Michael.
We look for a 950K increase in September private payrolls, more than the 700K or so implied by the Homebase daily employment data but consistent with ADP, assuming it has undershot the official numbers for a sixth straight month.
After three straight lower-than-expected jobless claims numbers, we have to consider, at least, the idea that maybe the trend is falling again. This would be a remarkable development, given that claims already are at their lowest level ever, when adjusted for population growth, and at their lowest absolute level since the early 1970s.
In about 100 days, the LatAm economy and financial markets will face a defining moment in the face of uncertainty, namely, the outcome of the U.S. presidential election.
The Fed's announcement, at 11.30pm Wednesday, that it will establish a Money Market Mutual Fund Liquidity Facility--MMLF--to support prime money market funds, is another step to limit the emerging credit crunch triggered by the virus.
Halfway through the third quarter, we have no objection to the idea that GDP growth likely will exceed 2% for the third straight quarter.
The biggest surprise in the recent inflation numbers has been the surge in the PCE measure of hospital services costs, where the year-over-year rate has jumped to 3.8% in February, an eight-year high, from just 1.3% in September.
The recent sell-off in Treasuries has not yet reached significant proportions.
We're expecting the first look at August employment, in the form of today's ADP report, to fall short of the 1,000K consensus forecast; we look for 500K.
The key market risk in the August employment report is the hourly earnings number. The consensus forecast is for a 0.2% month-to-month increase, in line with the underlying trend, but the balance of risks is firmly to the downside.
Perhaps the single strongest U.S. economic data series in recent months has been construction spending, which has risen by more than 1%, month-to-month, in four of the past five months.
The Fed will do nothing and say little that's new after its meeting today. The data on economic activity have been mixed since the March meeting, when rates were hiked and the economic forecasts were upgraded, largely as a result of the fiscal stimulus.
Mortgage applications appear to have recovered from their reported February drop, which was due mostly to a very long-standing seasonal adjustment problem
Markets usually ignore the monthly import price data, presumably because they are far removed, especially at the headline level, from the consumer price numbers the Fed targets.
The half-way point of the quarter is not, alas, the half-way point of the data flow for the quarter.
The near-real-time economic data have been hard to read recently, because of distortions caused by the Labor Day holiday.
As we reach our deadline on Sunday afternoon, eastern time, Tropical Storm Florence continues to dump vast quantities of rain on the Carolinas, and is forecast to head through Kentucky and Tennessee, before heading north.
Manufacturing is in recession, with few signs yet that a floor is near, still less a recovery.
Some of the recent labor market data appear contradictory. For example, the official JOLTS measure of the number of job openings has spiked to an all-time high, and the number of openings is now greater than the number of unemployed people, for the first time since the data series begins, in 2001.
The year-over-year rate of core CPI inflation rose steadily from a low of 1.6% in January 2015 to 2.3% in February this year. At that point, the three-month annualized rate had reached a startling 3.0%. You could be forgiven, therefore, for thinking that the dip in core inflation back to 2.2% in March was an inevitable correction after a period of unsustainably rapid gains, and that the underlying trend in core inflation isn't really heading towards 3%.
While were out over the holidays, the single biggest surprise in the data was yet another drop in imports, reported in the advance trade numbers for November.
The first estimate of retail sales growth in August was weaker than implied by the Redbook chainstore sales survey, but our first chart shows that the difference between the numbers was well within the usual margin of error.
In the wake of the September retail sales report, we can be pretty sure that real consumers' spending rose at a 2¾% annualized rate in the third quarter, slowing from the unsustainable 4.3% jump. That would mean consumption contributed 1.9 percentage points to headline GDP growth.
We're reasonably happy with the idea that business sentiment is stabilizing, albeit at a low level, but that does not mean that all the downside risk to economic growth is over.
Our payroll model, which incorporates survey data as well as the error term from our ADP forecast, points to a hefty 225K increase in November employment. We have tweaked the forecast to the upside because of the tendency in recent years for the fourth quarter numbers to be stronger than the prior trend, as our first chart shows.
The spike in the May core CPI, and its likely echo in the core PCE, won't stop the Fed easing at the end of this month.
The FOMC did nothing yesterday and said nothing significantly different from its June statement, as was universally expected.
The FOMC statement did enough to keep alive the idea that rates could rise in March, but the ball is now mostly in Congress' court. If a clear plan for substantial fiscal easing has emerged by the time of the meeting on March 15, policymakers can incorporate its potential impact on growth, unemployment and inflation into their forecasts, then a rate hike will be much more likely.
Core inflation failed in May to record its fifth straight 0.2% increase, but--on the 200th anniversary of the Battle of Waterloo--we are obliged to point out that it was the nearest-run thing you ever saw. As published, the core index rose 0.145%, but favorable rounding--at the fourth decimal place--did the job.
Last week's unprecedented surge in initial jobless claims, to 3,283K from 282K, prompted a New York Times front page for the ages; if you haven't seen it, click here.
We don't use the index of leading economic indicators as a forecasting tool. If it leads the pace of growth at all, it's not by much, and in recent years it has proved deeply unreliable.
Rising mortgage rates appear to have triggered the start, perhaps, of a tightening in lending standards, even before Treasury yields spiked this month and stock prices fell.
In one line: Grim. Thank the trade war, which means no improvement is likely anytime soon.
Within the next few month, and perhaps as soon as next month, the gap between the headline NFIB and ISM manufacturing indexes, shown in our first chart, will close for the first time since late 2008.
In the wake of the uptick in the March ISM manufacturing survey, we think today's official production data for the same month are likely to disappoint. Our model of the month-to-month output numbers incorporates the ISM data, but it is substantially driven by manufacturing hours worked, which fell in both February and March.
A startlingly wide gap has emerged over the past nine months between the ISM manufacturing index and Markit's manufacturing PMI.
On the face of it, small business have taken quite a hit over the past few months. The headline index from the NFIB survey of small businesses has dropped to a nine-month low of 95.2 in March from 100.4 in December. As a result, the gap between the NFIB and the ISM manufacturing indexes, which had been narrowing, has widened again.
The easiest way to track the impact of the rising dollar on real economic activity is via the export orders component of the ISM manufacturing survey. We have been profoundly skeptical of the value of the ISM headline index, because it suffers from substantial seasonal adjustment problems, but the export orders index seems not to be similarly afflicted.
If you wanted to be charitable, you could argue that the downturn in the rate of growth of core durable goods orders in recent months has not been as bad as implied by the ISM manufacturing survey.
The substantial, though incomplete, rebound in the September ISM manufacturing survey is consistent with our view that the outlook for the industrial economy right now is better than at any time since before the crash in oil prices
The headline index in today's NFIB small business survey probably won't quite converge with the ISM manufacturing index, but it will come v ery close. To close the gap completely, for the first time since the crash, the NFIB needs to rise to just over 102, from 100.4.
The simultaneous weakening of the ISM manufacturing and non-manufacturing surveys in recent months is one of the more disconcerting shifts in the recent macro data.
Last Friday's August auto sales numbers were overshadowed by the below-consensus payroll report and the six-year high in the ISM manufacturing index, but they are the first data to reflect the impact of Hurricane Harvey.
Markets reacted strongly to yesterday's consensus-beating data, with the ISM manufacturing survey drawing most of the attention as the industrial recession thesis took another body blow. But we are more interested in the strong construction spending data for January, which set the first quarter off on a very strong note.
The June ISM manufacturing index signalled clearly that the industrial recovery continues, with the headline number rising to its highest level since August 2014, propelled by rising orders and production. But the industrial economy is not booming and the upturn likely will lose a bit of momentum in the second half as the rebound in oil sector capex slows.
We're expecting to see November payrolls up by about 200K this morning, but our forecast takes into account the likelihood that the initial reading will be revised up. In the five years through 2014, the first estimate of November payrolls was revised up by an average of 73K by the time o f the third estimate. Our forecast for today, therefore, is consistent with our view that the underlying trend in payrolls is 250K-plus. That's the message of the very low level of jobless claims, and the strength of all surveys of hiring, with the exception of the depressed ISM manufacturing employment index. Manufacturing accounts for only 9% of payrolls, though, so this just doesn't matter.
The July trade deficit likely fell significantly further than the consensus forecast for a dip to $42.2B from $43.8B in June, despite the sharp drop in the ISM manufacturing export orders index. Our optimism is not just wishful thinking on our p art; our forecast is based on the BEA's new advance trade report. These data passed unnoticed in the markets and the media. The July report, released August 28, wasn't even listed on Bloomberg's U.S. calendar, which does manage to find space for such useless indicators as the Challenger job cut survey and Kansas City Fed manufacturing index. Baffling.
The seasonal adjustment problems which tend to drive up the national ISM manufacturing survey in late spring and summer are more or less absent from the Chicago PMI, which will be released today. As far as we can tell, the biggest short-term influence on the Chicago number is variations in the order flow for Boeing aircraft; the company moved its headquarters to the city from Seattle in 2001.
We are not bothered by either the drop in real December consumption, all of which was due to a weather-induced plunge in utility spending, or the drop in the ISM manufacturing index, which is mostly a story about hopeless seasonal adjustments.
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