Inventories could be more of a negative factor for future growth... by Daniel Silver

Inventories could be more of a negative factor for future growth than we had anticipated.

Daniel Silver

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Categorized in : Business

We continue to believe that the underlying trend in job growth has slowed lately but that it remains decent.

The link between sentiment and spending is not especially tight, but the recent decline in consumer sentiment could be a sign that the spending data will soften soon.

There could be more noticeable effects on various growth components, with weakness in related equipment spending and exports and a partially offsetting increase in inventories.

It supports our view that the tightness in the labor market is generating upward pressure on compensation.

It looks like the labor market remains in solid shape despite significant weakening in business and consumer sentiment in recent months and we don't see much evidence that the government shutdown spilled over into the private labor market in an especially meaningful way.

While we think a tightening labor market will keep upward pressure on pricing in the US, the recent strengthening in the dollar, along with declines in various commodity prices related to food and energy, likely depressed the June import price data.

We had been expecting a move up like this because we thought that temporary auto plant shutdowns would lead to more initial claims filings during the week ending June 30 than normal for comparable weeks in recent years, we think that the temporary plant closures, which usually are on and off for about a month in the weeks around July 4, are likely generating noise in the claims data now, so we do not think that the increase in claims over the past two weeks is an especially negative sign for the labor market.

The upward trend in the new home sales data contrasts with the signals from many other recent housing indicators, which have turned weaker lately, we still think that real residential investment will be close to flat in second quarter.

The claims data suggest that the labor market is healthy and that... by Daniel Silver

The claims data suggest that the labor market is healthy and that job growth will remain strong.

While the weakness in the FHFA house price data raised some concerns that the trend in house price appreciation had started to shift lower, so far, the Case-Shiller data do not support that view.

Early on in our tracking of the second-quarter housing data, it looks like real residential investment will decline during the quarter.

The tone of the Empire State survey suggests that we are moving past the recent weakness in the manufacturing sector.

The longer they wait, the more data they have. If their view is playing out that the economy is on a better footing than suggested by the last payroll report, I think they'd become more likely to hike, we think May is going to prove to be an outlier in terms of job growth and we're going to see some pickup in the coming months, but I think The Federal Reserve wants to see that really before hiking.

The upward revision to services consumption also has favorable forward-looking implications for second quarter GDP growth.

It is likely the inventory correction and stronger dollar continued to weigh on the output data for the first quarter, and we remain hopeful that the worst of the drags from these factors have passed and that activity will pick up shortly.

Through some of the ups and downs in the weekly series, it looks like the trend in initial claims has improved over the past month, signaling that the labor market continues to improve despite weakness in several other recent economic reports.

Through some of the noise in the data, it appears that home sales are continuing to trend higher over time off of historically low levels. We maintain our view that the housing market will continue to recover.

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It appears that at least some of that deterioration was related to temporary factors including an unfavorable shift in the weather and perhaps layoffs of temporary workers following the holiday season.

The combination of more job openings and more people quitting could result in pay increases, and we have seen a few other signs that wages have increased as the labor market has tightened.

Going back a half year or so, it had seemed that the weakness in the economy was fairly isolated in the manufacturing sector as well as a few other areas, mainly energy and exports, but we now have these surveys showing that the service sector has weakened as well over the past few months.