US data miss reviewed and GDP tracking update - Nomura

Analysts at Nomura offered a review of the disappointment in the US data today and a GDP tracking update.

Key Quotes:

Initial jobless claims: 

For the week ending 29 July, initial jobless claims decreased 5k to 240k, bringing down the 4-week moving average by 2k to 242k. Continuing claims increased by a marginal 3k to 1968k for the week ending 22 July. Initial jobless claims were quite steady in July, staying within a range of 234-250k. The four-week moving average stayed within a 242-246k range. Overall, as the labor market continues to tighten, we expect these series to remain low. Firms are increasingly reluctant to separate with their employees in an environment where anecdotal evidence points to difficulty in finding qualified new hires

"ISM non-manufacturing: 

The ISM non-manufacturing index decreased 3.5pp in July to 53.9, pulling back somewhat from the elevated June reading of 57.4. Overall, the decline was broad-based across subindices. In particular, the new orders (-5.4pp), business activity (-4.9pp) and employment (-2.2pp) indicators all declined. Prices in certain food commodities and medical supplies equipment increased somewhat. The director of the survey noted that there has been somewhat of a cooling off in the non-manufacturing during the summer but that the overall business outlook remains upbeat going into Q3. The headline reading of 53.9, while still elevated, is the lowest reading since August 2016, well-before the election. However, the headline number can move around from month to month, and upcoming data will provide more information on whether this will be a sustained lower level. To a certain degree, overall business sentiment jumped after the election without a subsequent pickup in growth. Some pullback in sentiment may not portend an eventual slowdown in output.

Factory orders: 

Factory orders for June were in line with market expectations, increasing 3.0% m-o-m. May was revised up to a 0.3% decline from a 0.8% decline. The final estimate of durable goods orders came in at a 6.4% increase, which reflects a 0.1pp downward revision from the advance estimate of a 6.5% increase. Much of the increase was due to a strong surge in transportation-related durable goods orders (+19.0%), which tend to be highly volatile. The increase in core durable goods orders (excluding transportation) was modest at 0.1%, reflecting a 0.1pp downward revision from the advance estimate of 0.2% increase. Core capital goods shipments were slightly lowered to a 0.1% increase (previously reported as a 0.2% increase in the advance estimate). Overall, final estimates of core durable goods orders and shipments still support our view that manufacturing activity continues to expand at a steady pace.

GDP tracking update: 

The final estimates of core capital goods shipments and manufacturers’ inventories were slightly weaker than the BEA’s assumptions for its advance estimate of Q2 real GDP. These readings suggest there may have been more drag from inventory accumulation and slightly less contribution from business equipment investment to top-line Q2 GDP. Thus, we lowered our Q2 GDP tracking estimate by 0.1pp to 2.3% q-o-q saar from 2.4%."