Analysts at Westpac noted the forthcoming key event in nonfarm payrolls. Key Quotes: “US Aug employment report Sep 1, nonfarm payrolls, Last: 209k, WBC 170k Sep 1, unemployment rate, Last: 4.3%, WBC 4.4% – Nonfarm payrolls rose 209k in July following a 231k gain in June and a 145k increase Read more…
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The week ahead: key events for the forthcoming week – Nomura
Analysts at Nomura offered their outlooks for the week ahead, starting with the USA, the Euro area, Japan and lastly China.
“USA: the week ahead
We expect strong nonfarm payroll job gains to have continued in August with the unemployment rate unchanged.
•Advance goods trade balance (Monday).
•Case-Shiller home price index (Tuesday).
•Conference Board’s Consumer Confidence (Tuesday).
ADP employment report (Wednesday): Reflecting our forecast for private payrolls in the BLS employment report on Friday, we expect ADP to report an increase of 200k in private payrolls for August.
Q2 GDP, second estimate (Wednesday): In the second estimate of Q2 GDP, we expect the BEA to raise its estimate by 0.3pp from 2.9% q-o-q saar. The advance release of Quarterly Services Survey suggests that personal consumption expenditure (PCE) could be revised up solidly in the second estimate. Further, backward revisions to core retail sales also suggest that PCE may have been higher than the BEA’s estimate. Moreover, incoming data on inventories were stronger than the BEA’s assumption overall. This suggests some upward revision to the change in private inventories as well.
•Personal income and spending (Thursday).
•Chicago PMI (Thursday).
•Pending home sales (Thursday).
Initial jobless claims (Thursday): Initial and continuing jobless claims have remained within a low range recently in the face of a tightening labor market with healthy gains in employment. Low levels of continuing claims reflect a favorable environment for job seekers: the job finding rate in July, measured as the fraction of unemployed workers that transition into employment, reached its highest level since March 2007. We expect both initial and continuing claims to remain low as the labor market continues to tighten in the medium term.
PCE deflators (Thursday): Relevant data from July CPI and PPI report suggest a gradual pick-up in core PCE inflation in July. Our forecast for July core PCE price inflation is a 0.1% (0.069%) m-o-m increase, equivalent to a 1.4% (1.38%) y-o-y gain. Core CPI inflation rose only 0.1% (0.114%) m-o-m in July. A major surprise was the sharp 4.2% m-o-m drop in lodging-away-from-home prices, which subtracted about 5bp from the m-o-m core PCE inflation rate. Although we expect this downside surprise in lodging-away-from-home prices to be transitory, it adversely affected our July m-o-m core PCE price forecast by about 4bp as hotel and motel prices account for 0.9% of the core PCE price index. Further, portfolio management and investment advice services prices and passenger air transportation prices (both from the PPI report) declined sharply, creating more drag on core PCE inflation. Moreover, slowdown in rent CPI inflation would continue to weigh on core PCE inflation. However, decent increases in hospital prices from the PPI and prescription drug prices from the CPI were positive to core PCE inflation and may have partially offset the weakness in other subcomponents of core PCE index. Among noncore components, we expect aggregate energy PCE prices to fall 0.1% m-o-m. The prices of various energy commodities in CPI such as motor fuel and piped gas fell in the month, which may likely adversely affect the corresponding subcomponents of the PCE energy index. For food PCE inflation, we expect a steady 0.2% gain based on the CPI food-at-home price index. Altogether, we expect headline PCE index to increase by 0.1% (0.069%) m-o-m, which is equivalent to a 1.38% y-o-y increase.
•Construction spending (Friday).
•University of Michigan consumer sentiment (Friday).
Employment report (Friday): We forecast a 205k increase in nonfarm payroll employment for August with 200k from the private sector and a 5k contribution from government. Relevant employment indicators from business and manufacturing surveys have remained elevated while the labor market has added around 200k jobs in both previous months. Initial claims remain at historically low levels and continuing claims have inched slightly lower thus far in August. Strong readings from manufacturing surveys support our forecast of a 14k increase in manufacturing employment. We expect healthy payroll growth and low levels of initial claims to push the unemployment rate down by 5bp but remain unchanged on an unrounded basis at 4.3% (4.29%). The current unemployment rate sits just barely below a rounded 4.4% (4.349%). We expect a steady increase in average hourly earnings (AHE). However, the calendar timing of the first day of the month in August relative to the BLS establishment survey period adds some drag to our forecast. Overall, we expect AHE to increase by 0.1% m-o-m (2.51% y-o-y).
ISM manufacturing index (Friday): We forecast 56.3 for August, unchanged from 56.3 in July. Manufacturers’ sentiment has remained elevated despite reduced likelihood of a significant tax reform passing the Congress in the near term. August regional manufacturing surveys such as the Empire State and Philly Fed surveys showed strong increases in headline index with broad-based strength across subindices. The elevated sentiment may likely reflect steady improvement in core manufacturing output (excluding autos) and domestic demand. Based on these developments, we expect ISM manufacturing index to stay elevated in the near term.
Euro area: the week ahead
Euro area flash CPI data for July will be the main data highlight in the week ahead.
Germany, preliminary July inflation (Wed): We expect the flash reading of German HICP inflation to be 1.7% y-o-y in August, after 1.5% y-o-y in July.
•UK household borrowing & money supply (Wed).
Euro area preliminary July inflation (Thu): We expect the flash reading of euro area HICP inflation to increase to 1.4% y-o-y in August from 1.3% y-o-y in July. This is primarily due to energy-related base effects. Core inflation is expected to remain unchanged at 1.2% y-o-y in August.
UK PMI manufacturing (Fri): The manufacturing surveys have generally outperformed the official data over the past six months. The headline PMI manufacturing index remains four points above its long-run average at 55.1, the BCC activity balances remain elevated and the latest BoE Agents report shows manufacturing output growth in the domestic and export sectors both rising notably since the start of the year. At the same time, official manufacturing output has not risen during a single month in H1. We expect the latter will eventually follow the surveys upwards, and see the PMI remaining broadly at its current level in August.
Japan: the week ahead
The week ahead In light of weak production-related indicators for July, we expect a fall in industrial production from June.
•July Labour Force Survey (Tuesday).
•July Family Income and Expenditure Survey (all households) (Tuesday).
July industrial production (Thursday): We estimate industrial production in July to fall 0.5% m-o-m. The survey of manufacturers’ production forecasts in July called for an increase of 0.8% m-o-m. However, actual production tends to be lower than production plans, and adjusting this figure using realisation rates over the past three months gives a decline of 0.5%. In addition to these weak production plans, July production-related indicators have been weak across the board, suggesting that production is likely to be low. Corporate sentiment also declined, with the current conditions DI for manufacturers in the Economy Watchers Survey (seasonally adjusted) down 1.6pp m-o-m, falling for the first time in four months. The Japanese manufacturing PMI output index remained above the growth/ contraction threshold of 50 at 51.4, but declined 0.8pp m-o-m from June. Although we estimate that real exports from Japan, which have a strong correlation with industrial production, rose 1.6% m-o-m in July, the breakdown shows weakness in a number of items. We therefore estimate July production to come in close to the figure suggested by applying realisation rates to the production plans.
China: the week ahead
We expect China’s August official PMI to be relatively stable. High-frequency data of coal consumption by six major power plants suggests that growth momentum is likely losing further steam. As such, we believe the official PMI is likely to edge down to 51.3 in August from 51.4 in July.”