Private nonfarm payrolls in the US are projected to increase by 172,000 (seasonally adjusted) in tomorrow’s September update of the ADP Employment Report vs. the previous month, based on The Capital Spectator’s average point forecast for several econometric estimates. The average projection reflects a modestly lower gain vs. the advance in August.
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The odds for a Fed rate hike are falling like a stone, or so it appears based on the implied inflation forecast via the yield spread on nominal less inflation-indexed Treasuries. The slide is especially pronounced for 10-year maturities, which are now pricing future US inflation at the lowest level–just below 1.4%–since the end of the last recession in 2009 (based on daily data from Treasury.gov as of Sep. 28). That’s substantially below the Fed’s 2% target. The accuracy of the Treasury market’s inflation projections are questionable, as always. Nonetheless, it’s clear that the crowd’s managing expectations down on the outlook for inflation.
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● US personal spending: +0.4% in August, matching July’s rise | BEA
● US disposable personal income: +0.4% in August vs. +0.5% in July | BEA
● US pending home sales fall in August, but still at “healthy” level | NAR
● Dallas Fed: Mfg contraction eases in September | Dallas Fed
● Eurozone Business Climate Indicator inches higher in Sep | EC

Today’s encouraging update on US personal income and spending for August raised the Atlanta Fed’s third-quarter GDP nowcast to 1.8% from 1.4% (seasonally adjusted annual rate). The revised GDP projection for the current quarter is still a sluggish pace and well below Q2’s strong 3.9% increase. But at least the revisions are moving in a positive direction. In fact, today’s update of the widely followed GDPNow model offers the highest growth rate since the Fed bank began publishing Q3 estimates in early August. That’s not saying much since the initial estimate was a tepid 0.9%. Nonetheless, in the current environment of bearish expectations, the sight of even minor upgrades for macro expectations is noteworthy.
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Consumer spending and disposable personal income—money available to spend or save after taxes—posted healthy increases in August, according to this morning’s update from the US Bureau of Economic Analysis. Personal consumption expenditures rose 0.4% last month, matching July’s gain. Disposable personal income’s (DPI) advance ticked down to 0.4% in August from 0.5% in the previous month, but that’s still an encouraging rate of growth. Meanwhile, the year-over-year gains for income and spending remained steady in the 4% range, suggesting that the consumer sector—the foundation for US economic activity–remains on track to deliver moderate if unspectacular increases in the near-term future.
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Value investors on the lookout for bargains have recently been eyeing up the battered corner of emerging market equities. At some point the selling will lay the foundation for a solid rebound. Judging by last week’s trading, however, there was no sign that a bullish inflection point is near. Stocks in emerging countries led the way lower last week through Sep. 25, based on the Vanguard Emerging Markets ETF (VWO). The fund was by far the worst performer among a set of proxies for monitoring the major asset classes.
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● US Q2 GDP growth revised up to 3.9% from 3.7% | BEA
● US Services PMI growth ticks lower in Sep: 55.6 vs. 56.1 in Aug | Markit
● US consumer sentiment slips in September | Reuters
● Solid gain for business & consumer confidence in Italy in Sep | RTT
● US dollar firms on expectations of Fed rate hike | Reuters
● IMF head says global growth outlook will likely be revised down | Reuters

US economic growth has downshifted lately, but only moderately so, according to this morning’s flash estimate of the Services PMI data for September. Markit’s sentiment benchmark for the sector, which represents the dominant slice of US economic activity and payrolls, dipped to 55.6 in this month’s initial reading from 56.1 in August. But that’s still a solid pace and is well above the neutral 50.0 mark that separates growth from contraction. In short, the Services PMI suggests that the US macro trend is still positive.
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Avoiding a hefty drawdown is a high priority for every investment strategy, but monitoring the history of decline from previous peaks is a valuable indicator for deciding if a given market has crossed the Rubicon into bear-market territory. Minds will differ at the moment on the subject of US equities, in part because the S&P 500’s one-year loss is a relatively mild 3.3% slide as of Sep. 24. But drawdown data is painting a darker profile for the US stock market.
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● US durable goods orders slump 2% in August–first drop in 3 mos. | MarketWatch
● US jobless claims up 3k last week to still-low 367k | Bloomberg
● Chicago Fed Index: US growth at slightly above-trend pace in Aug | Chicago Fed
● US new home sales rise 5.7% in Aug to post-recession high | WSJ
● US Consumer Comfort Index rises the most in 3 months | Bloomberg
● US KC Fed Mfg Index posts slower rate of decline in Aug | 24/7 Wall St
● Eurozone lending up, M3 money supply pace falls in Aug | Reuters