Treasury yields held on to their modest rebound this week through Thursday’s close, ahead of the Federal Reserve annual conference that begins today in Jackson Hole, Wyoming. No doubt the discussions will center on whether the central bank will begin raising interest rates at its Sept. 16-17 policy meeting. Earlier this week, New York Fed chief Bill Dudley threw cold water on the prospects for tightening next month, explaining that the case for a rate hike looked “less compelling” relative to two weeks earlier. The catalyst for his cautious view, of course, is the recent market turbulence. But in the wake of this week’s US economic reports, it’s not obvious that the macro trend is stumbling for the world’s largest economy, even if Mr. Market’s hysterics of late suggest otherwise.
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● US GDP growth revised sharply higher to 3.2% for Q2
● US jobless claims fall 6,000, close to multi-decade low
● US pending home sales edge up in July–up 7.4% from year-earlier level
● US consumer comfort index jumps to 5-week high
● Eurozone economic sentiment ticks higher in August

This morning’s macro updates reaffirm the case for cautious optimism on the outlook for the US economy. The revised second-quarter GDP data show that growth was substantially stronger during the April-through-June period: 3.7% vs. the initial 2.3% estimate (seasonally adjusted annual rate). In addition, today’s weekly report on initial jobless claims reveals that this leading indicator for the labor market remains close to multi-decade lows. In short, the latest figures suggest that business cycle risk for the US is still low.
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The only thing worse than crumbling stock prices is a market slide that’s accompanied by a contracting economy. The US has witnessed the former recently, but it’s not obvious that the macro trend is fatally wounded. The outlook for growth remains moderate for the world’s largest economy, which is to say that the trend is more or less unchanged from recent history. As a result, the forecast that the US is slipping into the business-cycle ditch sounds like an emotional reaction to recent market volatility rather than an objective review of the published data to date.
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● A solid gain for US durable goods orders in July
● NY Fed chief says September rate hike is now “less compelling”
● US mortgage applications inched higher last week
● China’s equity market rebounds on Thursday, following Wall Street higher
● Eurozone money supply & private lending growth accelerate in July

The US stock market couldn’t hold on to its snap-back rally in early trading on Tuesday, but Treasury yields posted a sharp U-turn yesterday (Aug. 25). For a day, at least, the notion that the appetite for safety was limitless was turned on its head as the crowd sold bonds.
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● US Services PMI posts solid growth for August
● New home sales in US increase to 7-month high in July
● US consumer confidence rises sharply in August
● S&P Case-Shiller: US home prices still rising at moderate annual pace through June
● Redbook: US chain-store sales rise in first 3 weeks of August

Looking for signs that the US is slipping into a recession in the wake of recent turmoil in the global equity markets? You won’t find a smoking gun in today’s initial August estimate of economic activity in the services sector from Markit Economics. The group’s flash data for its US Services PMI ticked down to 55.2 this month, slightly below July’s 55.7 reading. But that’s still well above the neutral 50.0 mark. The bottom line: the crucial services sector—the dominant source of employment in the US—continues to expand at a healthy if slightly slower pace, according to today’s headline PMI number.
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Stock markets around the world have tumbled in recent days, which implies that expectations for economic growth have taken a hit. But markets aren’t flawless prediction machines and so it’s debatable if the current turmoil will lead to a contraction in global output vs. slower growth. If you’re a true optimist, you may be inclined to read the latest tantrum as noise, with little if any relevance for the real economy.
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● China’s stock market tumbles again on Tuesday
● Europe’s equity markets on firmer footing after Monday’s rout
● US economic growth picks up in July via Chicago Fed Index
● China Leading Index rises in July, Conference Board reports
● Business confidence in Germany increases in August