ADP Employment, Consumer Confidence, House Prices, Chicago PMI

                                   Shattered Confidence Casts a Shadow Over Q3

  • The ADP Employment Report for August showed a lackluster gain of 91,000 private sector jobs.
  • The Conference Board’s Consumer Confidence Index plummeted in August to a depressed 44.5.
  • The Case-Shiller 20-City Composite House Price Index for June dipped by 0.1 percent.
  • The Chicago ISM Report Business Barometer for August fell to a still-positive 58.7.

The ADP Employment Report showed a total of 91,000 net private-sector jobs created in August. Two factors suggest that Friday’s official Bureau of Labor Statistics payroll employment numbers will be weaker. First, ADP does not include government employment and the government sector has been a consistent drag on the BLS total employment numbers. Second is that ADP counted the approximately 45,000 striking Verizon workers as employed. It appears likely that the BLS will count the majority of the striking Verizon workers as not employed (the timing of the strike, the actual Verizon pay schedule and the BLS data collection period together have enough wiggle room to make the final job counts uncertain at this time). These two factors may be somewhat mitigated by the recent tendency of the ADP numbers to undershoot the official BLS private-sector job count. My original estimate of +75,000 for Friday’s BLS payroll number now looks a little strong. A reasonable guestimate is now +40,000, weak by any standard.

Of major concern are the consequences of the rapid decline in consumer confidence visible in August.  The month began with rancorous political debate and brinksmanship leading up to a last-minute deal to raise the federal debt ceiling. This was quickly followed by the downgrade of the U.S. sovereign debt credit rating by Standard & Poors (not matched by Moodys and Fitch). Then we witnessed more stress in European financial markets accompanied by concern of a spreading Euro-zone “contagion.” By mid-August it was apparent that consumer confidence was badly shaken, confirmed by the plunge in the Conference Board’s Consumer Confidence Index to 44.5 for August.  Expect to see weak discretionary consumer spending in August, including spending on houses, cars, furniture and appliances. The Case-Shiller 20-City Composite House Price Index for June dipped slightly, by 0.1 percent on a seasonally adjusted basis (oftentimes these numbers are reported on a non-seasonally adjusted basis). Eleven out of 20 cities showed declines. Washington, Chicago, Charlotte and Boston showed moderate to strong gains. Over the past year the index is down 4.5 percent. The Chicago Institute for Supply Management’s Business Barometer fell from62.9 inJune to58.7 inAugust. A reading above 50 reflects improving overall business conditions. Most subcomponents declined but remained above 50, with the exception of order backlogs, which showed a small contraction.

Market Reaction: U.S. equities opened with gains. Treasury yields are up at both ends of the yield curve. Oil is up to $89.09/barrel. The dollar is up against the yen and the euro.

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