Economic activity in the US services sector posted robust gains in August, throwing more cold water on the idea that the US macro trend is fatally wounded. The headline figure for the ISM Non-Manufacturing Index retreated last month, but only moderately so—and after touching an all-time high in July (based on data that begins in 2008). Meanwhile, Markit’s US Services Purchasing Managers’ Index (PMI) for August was revised up from the previously released flash estimate. As a result, this benchmark rose to its highest level in three months in August, signaling a healthy pace of growth.
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Weekly filings for unemployment benefits rose 12,000 last week to a seasonally adjusted 282,000, the US Labor Department reports. The jump is well above Econoday.com’s consensus forecast that anticipated a small rise to 273,000. But when you step back and consider the trend, the news is still upbeat. Indeed, the four-week average for jobless claims is still close to the lowest level since the early 1970s. Meanwhile, the weekly tally for this leading indicator continues to fall in year-over-year terms, suggesting that the labor market’s expansion will roll on in the near future. Today’s numbers also provide support for thinking that tomorrow’s August employment report from Washington will offer a fresh round of encouraging news for the economic outlook generally.
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The roller-coaster ride in global markets in recent weeks has raised new doubts about economic growth in general and the case for a Fed rate hike this month in particular. But the resilience of key Treasury yields in recent days suggests that the bond market may be rethinking the case for the worst-case scenario that seemed inevitable over a few days last week. It could all reverse course in a heartbeat–especially if tomorrow’s employment report for August falls short of expectations for solid growth. Meantime, the rebound in US yields this week suggests that reports of optimism’s death may have been exaggerated.
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● ADP: A moderate rise for US private employment in August
● US factory orders rise on higher auto demand in July
● Fed’s Beige Book: US expansion continues in July and August
● US mortgage applications surged last week
● Gallup’s US Job Creation Index remains at record high in August
● Eurozone y-o-y rise in real retail sales accelerates to 2.7% in July
● Composite PMI: Eurozone economy “resilient” in August

Payrolls at US companies increased by a moderate 190,000 (seasonally adjusted) in August, according to this morning’s monthly release of the ADP Employment Report. The respectable if not particularly impressive gain is slightly below Econoday.com’s consensus forecast for a 210,000 advance. Meanwhile, last month’s rise translates into another round of easing for the year-over-year rate. Nonetheless, today’s numbers are strong enough to fend off worries that a recession is imminent for the US.
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The recent turbulence in financial and commodity markets has cast a dark shadow over the near-term outlook. Not surprisingly, given the depth and speed of the rout, a number of forward-looking markets-based models are signaling more trouble ahead, namely an extended bear market in stocks and perhaps an economic recession for the US and elsewhere. But if there’s still a reason to refrain from throwing in the towel and joining hands with the bears it’s because the broad macro trend for the US remains positive. Is that because the economic numbers arrive with a lag and so the worst is yet to come? Maybe, but that view amounts to guesswork at this point.
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The expected risk premium for the Global Market Index (GMI) fell in August, sliding to the lowest level in recent history. GMI — an unmanaged, market-value weighted mix of the major asset classes — is projected to earn an annualized 3.4% over the “risk-free” rate in the long term. (For details on the equilibrium-based methodology that’s used to generate the forecasts each month, see the summary below). Today’s updated estimate, which is based on data through the close of last month, decreased 30 basis points from the previous projection.
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● US auto sales rise to the highest pace in a decade in August
● US ISM Mfg Index: growth slips to 2-year low in August
● US Mfg PMI: growth at 22-month low in August
● US construction spending rises to post-recession high in July
● PMI: Global mfg output in August decelerates to slowest pace in 28 months

Private nonfarm payrolls in the US are projected to increase by 194,000 (seasonally adjusted) in tomorrow’s August 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 stronger gain vs. July’s advance.
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US economic risk increased at the end of August, according to a markets-based estimate of macro conditions. The Macro-Markets Risk Index (MMRI) closed at +0.4% yesterday (August 31) after briefly slipping into mildly negative territory for several days last week. MMRI’s temporary dip into the red in late-August marks the first negative readings since early 2012. It’s important to note that while a markets-based view of the business cycle has turned cautious lately, there’s no confirming support in the hard economic data–at least not based on published numbers to date.
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