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  • U.S. payroll report is expected to show a solid U.S. labor market
  • U.S. ISM manufacturing confidence expected to remain strong
  • U.S. consumer sentiment expected to remain strong
  • U.S. vehicle sales expected to remain weak

U.S. payroll report is expected to show a solid U.S. labor market —   The consensus is for today’s Aug payroll report to show an increase of +180,000, which would match the 12-month trend average.  Payroll growth earlier this year showed some weakness in March (+50,000) and May (+145,000), but otherwise payrolls have shown increases of more than +200,000 in every other month this year.  Payroll growth so far this year has averaged +184,000 per month.

Expectations for today’s payroll report were bolstered by this past Wednesday’s ADP report, which showed a much stronger-than-expected increase of +237,000 versus expectations of +185,000.  In addition, July’s ADP report was revised higher by +24,000 to +201,000 from +178,000.

The prospects look favorable for continued strong hiring based on the job openings data.  The JOLTS U.S. job openings series in June soared by +461,000 jobs to a record high of 6.163 million jobs.  That was a strong leading indicator for job growth over the next several months since many job openings will turn into an actual job hire once the 1-3 month hiring process is completed.

The consensus is for today’s Aug U.S. unemployment rate to be unchanged at 4.3%, which would match the 16-year low of 4.3% first posted in May.  The U.S. unemployment rate is already at the 4.3% level that the FOMC is forecasting for Q4-2017 and is only +0.1 point above the 4.2% level that the FOMC is forecasting for 2018-19.

The current unemployment rate of 4.3% is -0.3 points below the FOMC’s estimate of a longer-run natural unemployment rate of 4.6%, which suggests that the U.S. labor market is tight with some theoretical upward pressure on wages.  The consensus is for today’s Aug average hourly earnings report to edge higher to +2.6% y/y from July’s +2.5%, but remain below the 8-1/4 year high of +2.9% posted in Dec 2016.

 

U.S. ISM manufacturing confidence expected to remain strong — The consensus is for today’s Aug ISM manufacturing index to show a small +0.2 point gain to 56.5, stabilizing after July’s -1.5 point decline to 56.3.  Meanwhile, the Aug ISM new orders sub-index is expected to show a -0.4 point decline to 60.0, adding to July’s -3.1 point decline to 60.4.  The expected new orders index level of 60.0, however, would still be a strong level that indicates that manufacturing executives are seeing strong order flow that is keeping the order pipeline full.

Manufacturing confidence rose moderately after the November 2016 election and remains relatively strong.  The Republican agenda has been disappointing thus far, but U.S. manufacturing executives have other things to be pleased about, including (1) strong Q2 GDP of +3.0%, (2) improved European and Chinese growth, and (3) the sharp decline in the dollar this year that has boosted U.S. exports.

U.S. consumer sentiment expected to remain strong — The market consensus is for today’s final-Aug University of Michigan U.S. consumer sentiment index to show a small -0.2 point decline to 97.4, which would result in a final +4.0 point rise from July rather than the preliminary rise of +4.2.  The U.S. consumer sentiment index remains in strong shape at only -0.9 points below the 13-1/2 year high of 98.5 posted in January.

U.S. consumer confidence continues to see strength due to (1) the firm U.S. economy and labor market, (2) rising household wealth due to the recent record high in the stock market and rising home prices, (3) continued low interest rates and mortgage rates, (4) low gasoline prices, and (5) hopes for a personal tax rate cut.

However, U.S. consumer confidence has settled back from post-election levels mainly because of the slow Republican growth agenda.  Other negative factors for U.S. consumer confidence include (1) geopolitical tensions with North Korea, (2) White House political uncertainty, and (3) the prospects for steadily higher interest rates over the next few years as the Fed raises its funds rate target.

U.S. vehicle sales expected to remain weak — The market consensus is for today’s Aug total vehicle sales report to edge lower to 16.60 million units from July’s 16.69 million units.  Vehicle sales are in weak shape, just slightly above the 2-1/2 year low of 16.59 million units posted in June.  

The weakness in vehicle sales stems from (1) caution among consumers in buying high-ticket-priced items, (2) resistance to the high prices being charged for new vehicles, (3) increased competition from used vehicles, which have recently dropped sharply in price due to a glut of used vehicles on the market, and (4) tighter credit conditions in the sub-prime auto loan sector where bank losses have been rising.

Truck sales topped out in December 2016 at a 11-1/4 year high of 11.21 million and are currently mildly below that level at 10.74 million units.  On a year-on-year basis, truck sales turned negative at -1.1% y/y in July for the first time in seven years. 

The weakness in truck sales is bad news for vehicle manufacturers since trucks have been holding up the industry as a whole for the last three years.  Over the last three years, auto sales have been falling sharply and are currently just slightly above June’s 6-year low of 5.75 million units.  Auto sales in June were down sharply by -13.8% on a year-on-year basis. 

 

 

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