Market Overview

Economic Data Mixed To Start Week, Key Employment Data Due Friday

Economic Data Mixed To Start Week, Key Employment Data Due Friday

Monday's economic data was mixed, leaving market participants focused on the key unemployment report coming Friday.

Income And Spending Up

Personal income and spending both rose in August. Personal income rose 0.3 percent, while spending surged up 0.5 percent.

The Personal Consumption Expenditure (PCE) metric came in at 1.5 percent versus a consensus of 1.4 percent. Core PCE, ex-food and energy, was also up 1.5 percent. PCE is the Federal Reserve's preferred measure of inflation, and today's numbers confirm that inflation pressures remain manageable.

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Housing Weakness

Home sales data was on the weak side. August Monthly Pending Home Sales were down 1 percent. On an annual basis, home sales fell 4.1 percent from August 2013.

The drop in sales was pervasive. Every area of the country, excluding the West Coast, experienced declines.

The decline is not good news for Leading Economic Indicators (LEI), due at the end of the month, as pending homes sales are considered an important barometer of future economic activity.

Tuesday brought more weak housing news. The S&P/Case-Shiller 20 city July Home Price Index increased 6.7 percent year over year, below the expectation of 7.45 percent. On a seasonally adjusted monthly basis it was down 0.5 percent, again worse than expected. The market had anticipated a decline of 0.1 percent.

Mixed Manufacturing

The first of several manufacturing and service sector surveys were released Monday. The Dallas Fed manufacturing survey came in at 10.8 percent, up from 7.1 in July.

That strong reading was not matched on Tuesday, when the Chicago Purchasing Managers September reading came in at 60.5, below the expected 62. Nonetheless the number confirmed the continued expansion of the manufacturing sector.

This data will be followed on Wednesday by the Institute of Supply Management's (ISM) national manufacturing index which is forecast to read 58.5. On Friday ISM release its service sector composite index. The consensus is for a reading of 57.1.

Jobs, Jobs, Jobs

Jobs data will become the focus of the market as the week moves on. On Wednesday ADP releases its September Employment Change. Expectations call for an increase of 202,000 jobs. Weekly Initial Jobless claims on Thursday are expected to rise to 300,000.

The most important release of the week will be on Friday when the commerce department publishes its reading on the August jobs market. Non-farm payrolls are expected to rise substantially to 213,000 from July's tepid 142,000 reading.

The unemployment rate is forecast to remain at 6.1. Average hourly earnings will rise 0.2 percent and hours worked remain at 34.5, according to the most recent survey of economists.

Market participants will be looking closely at the overall labor participation rate. Fed chair Janet Yellen has highlighted this an important forecasting tool for the strength of the labor market. Last month's reading of 62.8 was near a historical low.

This low reading indicates that the unemployment rate is falling because discouraged job seekers have dropped out of the labor pool; that is, they have stopped looking for work. The Fed is unlikely to raise rates with the labor market filled with so many unemployed and discouraged former participants.

A reading above 64 would indicate the jobs market has absorbed this slack in the labor market and the economy is on more solid footing.

Posted-In: Federal Reserve Housing Market Janet Yellen manufacturing data PCEBonds Economics Federal Reserve Best of Benzinga


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