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Mixed Data Ahead of the Fed - July 31, 2018

Data Deluge

As the FOMC ponders the state of our economy at its ever-important FOMC meeting, we took some time to sift through the pile of varied data released over the last week in search of some clarity.

For the Housing Market, New Home Sales missed estimates, with last month’s results revised down as well. However, the CoreLogic 20-City Home Price Index beat estimates, increasing 6.51% YoY, and while Pending Home Sales beat expectations on a month on month basis, they were down a not-seasonally-adjusted 4% YoY.

In Manufacturing, Kansas City Manufacturing numbers missed, as did Durable Goods Orders ex Transportation and QoQ Annualized GDP. However, both Dallas Manufacturing and the Chicago Purchasing Managers indexes beat, with Dallas reporting “The robust expansion in Texas factory activity continued in July” and Chicago’s Prices Paid index rising to the highest level since September 2008.

For the consumer, University of Michigan Consumer Sentiment beat expectations, as “consumers have kept their confidence at high levels due to favorable job and income prospects”. Bloomberg’s Consumer Comfort Index hit levels last seen in 2000, and The Conference Board also reported high levels of consumer confidence, with a caveat:

“Consumers’ assessment of present-day conditions improved, suggesting that economic growth is still strong. However, while expectations continue to reflect optimism in the short-term economic outlook, back-to-back declines suggest consumers do not foresee growth accelerating.”

For Employment, Personal Income was in line with expectations while the Employment Cost Index, which we mentioned last week as being a release to watch, missed expectations on a QoQ basis, but was up 2.8% YoY for Civilian Workers, with both wages and benefits increasing. Jobless claims were, however, a sore spot as both Initial and Continuing Claims had the double-whammy of coming in higher than expectations and having their previous readings revised higher.

Clearly, there are some mixed messages across the economy, highlighted by two quotes from the Kansas City survey release:

“There is a lot of work and no one to make the products. We have been trying to add an extended shift and can’t get anyone. Offering $1,000 sign up bonus and no one is coming to apply.”

“We expect to make less profit in 2018 than last year, which is keeping us from hiring more people and paying bonuses.”

And while the impact of tariffs is yet to be fully hashed out, as the University of Michigan survey found, “Concerns about tariffs greatly accelerated in the July survey”. With another round of tariffs set to take effect tomorrow, we will likely know soon whether these fears are warranted.