US Economy

The US economy seemed to be on the verge of stalling as real GDP growth fell from 2.0% (saar) during Q1 to 1.5% during Q2. Payroll employment rose only 73,000 per month on average during Q2, down from 225,700 per month during Q1. However, Q2’s real GDP is likely to be revised higher because June’s trade deficit narrowed significantly, and the first batch of Q3 indicators is looking upbeat. For starters, payroll employment rose 163,000 during July. Let's review some of the other indicators:

(1) Personal income and retail sales are rising. I am encouraged to see that the Earned Income Proxy--which I calculate by multiplying aggregate hours worked in the private sector by the average hourly wage--rose 0.7% during June to a new record high. It rose again by 0.2% during July, to another new high. It is highly correlated with private wages and salaries in personal income. It is also highly correlated with retail sales, which rose 0.8% in July, the first gain in three months. Excluding gasoline service station sales, retail sales also rose 0.8% during July to a record high.

(2) Consumer confidence is mixed. Despite the improvement in retail sales during July, consumer confidence measures were mixed in August. The present situation component of the Consumer Sentiment Index (CSI) rose from 81.5 in June to 82.7 in July and 87.6 in August, the best reading since January 2008. The CSI’s expectations index fell from 67.8 June to 64.5 in August. The weekly Bloomberg Consumer Confidence Index, which is highly correlated with the Consumer Confidence Index, rebounded nicely earlier this year, but has been weakening in an erratic fashion during the spring and summer through mid-August.

(3) Jobless claims are falling again. Initial unemployment claims were hard to read earlier this year because unusually warm weather distorted the normal seasonal pattern. During the summer, auto plant closings for retooling can also distort the numbers. Those issues are less relevant now, and jobless claims seem to be resuming their downward trend as the four-week average declined to 363,750 during the week of August 11, the second lowest reading of the year so far.

(4) Industrial production still on uptrend. Manufacturing output stalled during Q2. But during July it rose to a new cyclical high, and the best pace since July 2008. Auto assemblies jumped 4.4% to a new cyclical high of 11.0 million units (saar), the highest rate since June 2007.

Today's Morning Briefing: Looking Up Again. (1) The bull is still charging ahead. (2) A short and shallow round trip. (3) Three corrections. Three relief rallies. (4) Economic Surprise Index rebounding. (5) Europeans still kicking the can, but at least it’s down the right road. (6) China’s indicators are stir-fried. (7) Brazil building infrastructure. (8) Doves vs. Hawks at the Fed. (9) Nothing to fear but one big cliff. (10) Q2 may be revised up, and Q3 is starting strong. (11) Everybody is chasing yield. (More for subscribers.)