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First of the Month U.S. Economic Data

07/02/2013

First of the Month U.S. Economic Data

There were plenty of calendar firsts yesterday – first day of the business week, the month, the third quarter, and the second half of the year. Generally those types of calendar days coincide with stronger capital flows into assets. This month, there might be some trepidation as the Federal Open Market Committee (FOMC) has made it clear that its intention to taper monthly bond purchases will be data dependent.

Therefore, investors must pay close attention to each report released this month. Monday morning, the data release began with U.S. ISM Manufacturing and U.S. Construction Spending.

 Let’s take a look….

 U.S. ISM Manufacturing (Figure 1.1)

  • June rose to 50.9, better than last month’s 49.0 and consensus estimate of 50.5
  • The new orders to inventory ratio rose back into positive territory at +1.4 versus last month’s (-0.2)
  • New orders rose to 51.9 from 48.8 in May
  • Inventories rose to 50.5 from 49.0 in May
  • Prices paid rose to 52.5 from 49.5 in May
  • Employment fell to 48.7 from 50.1 in May
  • Production rose to 53.4 from 48.6 in May
  • Order backlogs fell to 46.5 from 48.0 in May
  • Exports rose to 54.5 from 51 in May

Construction Spending (Figure 1.2)

  • May construction spending rose 0.5%, below estimate for a 0.6% gain
  • April construction spending was revised lower from +0.4% to +0.1%
  • Private residential construction spending rose 1.2% in May to it highest level since May 2008
  • Private construction spending was unchanged in May
  • Public construction spending rose 1.8% in May

COMMENTARY

Let me give some perspective on how I expect investors should be interpreting the many data releases over the next few weeks. First, many observers including myself, were rather surprised by the hawkish FOMC comments at the last meeting. Collectively, the FOMC is being challenged, not by a question of “will they taper?” but “should they taper?”

Monday morning’s U.S. data release was tepid. The overall ISM bounced back above 50, as did the new orders to inventory ratio. However, the employment component did weaken to a level not reported since September 2008.

Construction spending has been strong all during 2013 although this most recent report is not quite as strong as prior months this year.

Nothing about these reports will motivate the FOMC to “not” taper. It will take much more negative economic data releases than what was released Monday for that to be suggested. Next up: Friday’s U.S. jobs report with current expectations as follows.

Friday, July 5: U.S. Jobs Report Consensus Estimates

  • Change in nonfarm payrolls: +160,000 to +175,000. Last month: +175,000
  • Change in private payrolls: +170,000 to +185,000. Last month: +178,000
  • Unemployment rate down to 7.5% from 7.6% last month

Figure 1.1 U.S. ISM Manufacturing, July 2012 to July 2013

Source: Bloomberg

Figure 1.2 U.S. Construction Spending, 2008 to Present

Source: Bloomberg

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