- Modest growth expected for US spending in August for monthly comparison
- US pending home sales data on track to offer another upbeat forecast
- Dallas Fed will likely reaffirm the outlook for weak growth in US manufacturing
The week kicks off with a slow Monday for economic releases generally, although several US reports will be closely read for assessing the economic outlook at a time of growing concerns about the third quarter. First up is the monthly data on personal income and spending, followed by updates on pending home sales figures and the Dallas Fed manufacturing index.
US: Personal Income & Spending (1230 GMT) US economic growth appears to be slowing, but today’s income and spending report for the consumer sector is expected to reveal a steady pace for August.
Marketwatch.com’s consensus forecast sees personal consumption expenditures (PCE) advancing 0.3% in the monthly comparison, unchanged from July’s pace. The outlook, in other words, is encouraging, although the projection translates to a decline in the year-over-year gain to 3.1% - the slowest year-over-year rise in more than a year if today's forecast holds.
Weaker consumption for the annual comparison isn’t surprising at this point - the previously released retail sales data through August dipped slightly, approaching a multi-year low. The weaker annual trend for consumer spending raises concerns about the third quarter GDP report that’s scheduled for release next month.
The Atlanta Fed's GDPNow model has current projections of Q3 GDP growth at a sluggish 1.4% – less than half the 3.9% rise in last week's upwardly revised rate.
Take note, however, that consumer spending in the updated Q2 GDP data was revised higher to 3.9% (seasonally adjusted annual rate), up from the previous 3.6% estimate. By some accounts, that's a sign that personal spending - the economy's critical driver - will continue to rise at a healthy pace. The question is whether today's numbers for August support that thesis?
Short of an upside surprise in today’s PCE data, the evidence is piling up that the US macro trend is still on track to slow in the final months of the year.
On the other hand, maybe a downtick in spending's annual rate doesn't matter as much if personal income (PI) is holding up, as it's been doing recently.
PI is expected to rise 0.4% in today's August report, unchanged from the previous month. That equates with a 4.1% year-over-year gain - down slightly from July's pace, but still well above the rate of consumer spending. If consumption is ticking lower, it's not because income growth is fading.
US: Pending Home Sales (1400 GMT) Last week’s reports on home sales offered a mixed bag of data. Sales of existing homes - the majority of transactions in the US - fell in August to a four-month low. Purchases of new homes fared much better, rising to a new post-recession high last month.
Nonetheless, the outlook for housing based on sales data still looks moderately bullish. Existing purchases dipped last month, but only slightly, and the latest setback comes after July’s jump to an eight-year high.
Meantime, pending home sales - a leading indicator for existing purchases - held its ground in the update for July. "Contract activity in most of the country held steady last month, which bodes well for existing-sales to maintain their recent elevated pace to close out the summer,” said the chief economist at the National Association of Realtors in last month’s release.
It’ll be interesting to see how today’s pending sales numbers for August compares. One question that the crowd’s asking: Has the appetite for US home purchases waned in the wake of recent market volatility and worries about the global economy? Today’s report will offer a partial answer.
Economists are expecting good news: pending home sales are on track to rise 0.5% in August, matching the previous rise, according to Econoday.com's consensus forecast.
Dallas Fed Index (1430 GMT) Manufacturing remains one of the weaker corners in the economy and preliminary numbers for September offer little reason to expect a change any time soon.
The deteriorating trend for the regional manufacturing indexes published by the Fed banks is Exhibit A for concerns about this sector. The average monthly reading for four of the five indices published for September (today’s update will be the fifth release) dipped to its lowest negative level in recent history.
The acceleration in the bearish bias is effectively a forecast that manufacturing’s trend will remain weak for the near term.
By contrast, the flash data for Markit’s read on the national trend in manufacturing offers a modestly brighter profile for September. As reported last week, the Manufacturing Purchasing Managers’ Index (PMI) was unchanged this month relative to August, sticking to a moderately positive reading of 53.0 - above the neutral 50 mark. Nonetheless, the current PMI survey figures are pointing to the “the weakest manufacturing growth for almost two years, meaning the sector will have acted as a drag on the economy in the third quarter” Markit’s chief economist wrote.
Today’s update from the Dallas Fed isn’t expected to offer any relief. The crowd’s looking for a bit of relief in today's report. The index's negative reading is on track to ease slightly to minus 9 from minus 15.8 in August, according to Econoday.com's consensus outlook. That still reflects contraction, but at least it's not tumbling deeper into the red.
Disclosure: Originally published at Saxo Bank TradingFloor.com