The August 26 week has enough economic data to claim markets’ attention, but the lead-in to the long Labor Day weekend probably means it will not get more than cursory attention. Friday does not have an early close for bond or equities markets, but once the morning’s economic data is out of the way, activity on trading desks will thin out. Congress is still in recess and official Washington will be largely on vacation during the week. Fed policymakers should be absent from the public engagement calendar until after the holiday observance.
It remains to be seen what sort of hangover lingers after President Trump’s tweetstorm on Friday and his appearance at the G7 summit over the weekend.
The data reports are such that most of the numbers are already fairly well anticipated and probably won’t affect forecasters’ outlook for the US economy.
The second estimate of second quarter GDP at 8:30 ET on Thursday arrives at the mid-point of the third quarter and has been to some extent superseded by fresher numbers. Nonetheless, the up 2.1% advance estimate was something of an upside surprise from the strength in personal consumption expenditures. If these and the increase in government consumption expenditures are not revised down, it should help keep growth at a respectable, if unspectacular, pace.
Increases in personal income and spending in July at 8:30 ET on Friday should affirm that consumers are experiencing steady, modest improvement in wages and salaries which in turn is encouraging spending on goods and services. Recent declines in gasoline prices did not start to kick in until late July, so spending on nondurables could be higher in part on the early July jump in prices. Durables spending will reflect the softness for some categories like motor vehicles, but other types of spending may partially offset that. Spending on services is usually up month-to-month and should also benefit from improved discretionary incomes. The PCE deflator for July may finally see a little faster pace than the 1.4% year-over-year of the prior two months, but this is still noticeably below the Fed’s 2% objective.
The remaining surveys for conditions in the manufacturing and service sectors for August could clarify just how much the uncertainties in trade and tariff policy are impacting activity. Certainly August often sees moderation as the summer winds down and preparations for autumn and winters are not yet in play. However, the available reports suggest that manufacturing is on the verge of a wider contraction and that services are experiencing soft conditions.
The Dallas Fed’s Texas Manufacturing Outlook at 10:30 ET on Monday and the Richmond Fed’s Survey of Manufacturing at 10:00 ET on Tuesday will be pivotal to expectations for the ISM Manufacturing Index for August at 10:00 ET on Tuesday, September 3. Both correlate strongly with the ISM index and both have signaled contractionary or near-contractionary conditions in recent months. The Philadelphia manufacturing general business conditions index is also a solid precursor for the national number, however, it remains one of modest expansion. The Kansas City Fed Manufacturing Index, on the other hand, is pointing downward.
On Tuesday, the Richmond Fed’s Survey of the Service Sector is at 10:00 ET and the Dallas Fed’s Texas Service Sector Outlook is at 10:30 ET. Both of these have a solid correlation with the ISM Non-Manufacturing Index, the August report for which is set for 10:00 ET on Thursday, September 5. So far the two regional surveys of service sector activity from the New York and Philadelphia Federal Reserves signal continued modest expansion. It would be good news if the remaining two reports remain on a similar track. However, it is obvious that activity in the service sector has visibly cooled in comparison to last year.
The MNI-Chicago Business Barometer for August is at 9:45 ET on Friday, a timeslot that means it will get little more than a glance. The index has been below the 50-mark the past two months, an uncomfortable series of readings. However, some of this is probably due to the troubles at Boeing which is headquartered there. It has seen large numbers of cancellations of existing orders and very few new ones since the air disasters associated with its flagship 737 MAX planes.
New orders for durable goods in July at 8:30 ET on Monday will also reflect the lack of new orders for aircraft. The Paris Air Show generated a scant 9 new orders in June after none in May. The 31 new orders in July is only strong relative to recent months and may have arrived too late to be fully booked for the month. New orders typically seesaw between firmer and softer months. July could well tip downward from the up 1.9% in June.
The Conference Board’s Consumer Confidence Index for August at 10:00 ET on Tuesday will probably feel the bite of a negative news cycle in spite of still good labor market conditions. The index rose over 10 points in July to 135.7 with both strong current conditions and six-month expectations. While the labor market will predominate in keeping perceptions of the present fairly good with solid employment, optimism about the future will have taken a hit on fears of a recession and some near-term worries related to the shootings in El Paso and Dayton.
The final University of Michigan Consumer Sentiment Index for August at 10:00 ET on Friday is anticipated to see some upward revision after the 6.3 point drop in the preliminary report to 92.1 Still, like the Consumer Confidence Index, recession fears and a more generalized uncertainty related to events like the mass shootings will reduce the sense of optimism about the economy.
Data about the housing market is somewhat softer than has been anticipated in light of recent plunges in mortgage interest rates. Still, activity has revived compared to the second half of 2018 when rising rates and prices caused activity to slow down. The FHFA House Price Index for June at 9:00 ET on Tuesday may reflect that gains in home values are just not matching those of last year in spite of the increased affordability from lower mortgage rates. The NAR’s Pending Home Sales Index for July at 10:00 ET on Thursday is not expected to remain at the giddy 108.3 of June. However, it should be consistent with a decent number of sales to be closed in August.
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