Late Summer U.S. Data Sizzles, Draghi Doubles Down
- The August ADP Employment Report showed an increase of 204,000 private-sector jobs.
- Auto Sales for August geared up to a 17.5 million unit annual rate.
- The ISM Non-Manufacturing Index increased to 59.6 in August, indicating improving conditions.
- Initial Claims for Unemployment Insurance for the week ending August 30 gained 4,000 to hit 302,000.
- The U.S. International Trade Gap narrowed to -$40.5 billion in July, supportive of Q3 GDP.
- European Central Bank President Mario Draghi announced further monetary stimulus for the Eurozone.
Job creation remained solid through August, according to the ADP Employment Report. 204,000 private-sector jobs were added for the month. This would be consistent with a gain of about 215,000 in the official nonfarm payroll report for August, likely extending the streak of +200K job creation to seven consecutive months. The official BLS payroll employment numbers for August will be released tomorrow morning. We expect to see a decrease in the U.S. unemployment rate to 6.1 percent for August. Initial claims for unemployment insurance ticked up inconsequentially, by 4,000, to hit 302,000 for the week ending August 30. This is still a very good number, in line with our expectation of ongoing tightening in the U.S. labor market. Continuing claims fell by 64,000 for the week ending August 23, to hit a low 2,464,000. All those new paychecks are helping to push auto sales into very strong territory. The light-vehicle sales rate hit 17.5 million units in August, boosted by a sizeable increase in light truck sales. Strong light truck sales are, in turn, an indicator of improving overall economic conditions and for construction in particular. Sales rates of +17 million units are consistent with previous cyclical peaks. Pent-up demand from the Great Recession may support stronger than usual sales for a time, but it is reasonable to assume that we are approaching the cyclical peak for unit auto sales.
The U.S. international trade gap narrowed slightly in July to -$40.5 billion. Exports increased by $1.8 billion for the month. Imports increased by $1.6 billion. Petroleum exports were up by $1.1 billion in July. Falling prices will likely keep the nominal value of petroleum exports in check over the next couple of months. However, volumes are increasing as U.S. refineries look for new markets for that processed shale oil. Total imports in July were boosted by a $1.4 billion increase in auto imports as foreign automakers increase their inventories here in anticipation of ongoing string sales. For the first month of the third quarter, the real trade balance of goods is well below the second quarter average, implying that trade may be a solid contributor to Q3 real GDP growth. Third quarter GDP growth also got a shot in the arm from the ISM Non-Manufacturing Index for August which increased by more than expected, to 59.6. This is the highest reading since August 2005.
The sizzle on this side of the Atlantic is countered by a slump on the other side. European economic data continues to disappoint. Eurozone GDP was essentially unchanged in Q2 and inflation continues to trend lower than desirable. The European Central Bank today announced a 10-basis-point cut on short-term interest rates as well as the start of a new program of asset purchases. In October, the ECB will start purchasing asset-backed securities and euro-denominated covered bonds. Details of the new programs will be released in early October. The euro slid further against the dollar after today’s announcement by the ECB, now down to $1.30.
Market Reaction:U.S. stock markets open strong, supported by today’s domestic data. The 10-Year T-bond rate is up to 2.45 percent. NYMEX crude oil is down to $94.78/barrel. Natural gas futures are down to $3.88.
For a PDF version of this Comerica Economic Alert click here: ADP 09-04-14.