The week’s economic data, thus far, has been mixed, not unlike what we have received for much of 2016. For example, Tuesday’s release of the PMI Manufacturing Index Flash data for August was fractionally less robust at 52.1 than consensus was calling for (53.2). New Home Sales on the other hand came in at 654K for the month of July versus expectations calling for 580K. Existing Home Sales figures for July, released yesterday came in at 5.39M – well above consensus at 5.52M. However, on a month over month and year over year basis the data was negative, -3.2% and -1.6% respectively. The EIA Petroleum Status Report for last week reflected an inventory build across the board; crude inventories + 2.5Mbbl, gasoline +0.0Mbbl, and distillates + 0.1Mbbl.
Today and tomorrow’s economic focus will be the Kansas City Fed’s Economic Policy Symposium Proceedings being held in Jackson Hole, Wyoming. Dozens of central bankers, academics and economists participate in this annual event marking the conclusion of the summer for many. The title of this year’s symposium, “Designing Resilient Monetary Policy Frameworks for the Future”, tells you all you need to know. The focus will undoubtedly be on cross-border collaboration of monetary policy aimed at delivering unprecedented monetary and financial market stability in the event of a major shift in global economic performance.
Click on the Kansas City link
Other than the symposium, on today and tomorrow’s economic calendar three releases should be of particular import; Q2 GDP (c. 1.1%), Corporate Profits and PMI Services Flash.
William Dunkelberg, Chief Economist for NFIB, yesterday provided some compelling data to support the thesis that our economic recovery’s best days are behind it.
From the small business sector’s perspective, this “recovery” peaked late 2014 as measured by the quarterly surveys of a sample of the National Federation of Business’ (NFIB) 325,000 member firms. The Index of Small Business Optimism, a composite of ten questions, hit a cycle low of 84.0 in January 2009 and reached 86.8 at the official start of the recovery in July. It then rose erratically to its recovery peak of 97.7 in January 2015, below the 42 year average of 97.9 (and 99.4 from 1974 through 2007), before beginning a bumpy decline to July’s reading of 94.6.
Although the data do not signal “recession” yet, it is clearly confirming a slower growth path. It is possible that events will develop that will turn this around, but that is not likely in the current environment. The second most frequently cited reason for not investing and expanding among NFIB firms, after the economy, is “the political climate.” That will not be resolved until the end of the year and, regardless of the outcome of the election, producing another period of great uncertainty. Whether the outcome generates optimism or pessimism is very unclear, and the likelihood of changes in government policies that would encourage economic growth is very low.