LIVE MARKETS-Data tornado: PCE, GDP, ADP, et al

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DATA TORNADO: PCE, GDP, ADP, ET AL

Wednesday offered a investors cornucopia of mostly upbeat economic data, so let's dig in, starting with the Commerce Department's August Personal Consumption Expenditures (PCE) report USPCE=ECI.

The PCE price index—the Fed's pet inflation yardstick—rose by 0.3% on a monthly basis, and by 3.4% year-on-year. While the former marked an acceleration from July's 0.1% increase, it was cooler than the 0.4% consensus. The annual reading held firm, landing 0.3 percentage points south of analyst estimates.

Core prices (which exclude food and energy items) increased on monthly and annual bases by 0.2%, and 3.3%, respectively, both cooler than economists predicted.

The data lowered the likelihood of another rate hike at the Fed's October meeting to 34.9%, from 50.9% just yesterday, according to CME's FedWatch tool.

"For the Fed, the August PCE report is a glass half empty," says Bill Adams, chief US economist at Fifth Third. "Inflation’s trend is lower but still not close to their target and not improving, either. The reports leave the Fed’s October decision in play."

Elsewhere in the report, personal income increased by 0.2%, slower than July's 0.3% increase, and half the 0.4% growth analysts expected.

Personal consumption jumped 0.9%, marking a slight monthly deceleration but printing above the 0.1% growth projected by economists.

With spending far outpacing income, the savings rate—the unspent portion of disposable income—plunged to 4.1% from 4.6%.

"The U.S. consumer continues to make clear that reports of a spending slowdown remain greatly exaggerated," says Olu Sonola, head of US economics at Fitch. "Goods spending was rip-roaring in August, pointing to an economy that continues to pick up momentum despite persistent price pressures."

The Commerce Department also took its third and final stab at second-quarter GDP USGDPF=ECI reiterated last month's initial take, which showed the U.S. economy grew by 2.2% at a quarterly annualized rate in the April-to-June period, upwardly revising its first two iterations by a significant 0.7 percentage points.

Below the surface, the report shows international trade, with imports far outpacing exports, detracted 1.1 percentage points from the topline. Private inventories subtracted 0.53 pps from the headline figure.

In the plus column, fixed investment contributed 1.35 pps, with expenditures on equipment—a symptom of the AI buildout—adding 0.74 pps to the total.

Consumer spending, which accounts for about 70% of the U.S. economy, did the heavy lifting as always. The growth rate was upwardly revised to 3.8% from 3.4%. The consumer contributed a robust 2.5 percentage points to the topline number. Without the consumer, Q2 GDP would have fallen 0.3%.

"Today’s report doesn’t indicate that the economy is accelerating dramatically and is far from overheating, but it does confirm that it’s in better shape than prior data suggested and remains much more resilient than many had feared," writes Jim Baird, CIO at Plante Moran Financial Advisors.

Pivotoing to the labor market, the private sector added 90,000 jobs in September, a 150% surge from August and 20,000 more than economists projected, according to payrolls processor ADP USADP=ECI.

ADP has a sketchy track record as a predictor of official government data, but then so do analysts, at times. At any rate, the ADP print is 15.6% weaker than the 45,000 private payrolls increase expected from the Labor Department's more comprehensive jobs report, due on Friday.

Following Tuesday's JOLTS report, which showed an uptick in hiring, the ADP report adds a further evidence that the labor market is in solid (if not spectacular) shape ahead of Friday's jobs report, which is expected to show the US added 85,000 private sector jobs in September, just 5,000 short of the ADP figure.

The graphic below tracks ADP's National Employment Index and measures its accuracy (or lack thereof) relative to Labor Department data.

The indefatigable Commerce Department also released its advance take on goods trade balance USGBAL=ECI and wholesale inventories USAWIN=ECI for August.

The gap between the value of goods imported into the United States and those exported unexpectedly widened by 11.5% to $132.6 billion last month, or $17.6 billion more than analysts expected.

While exports increased by 1.9%, imports—a GDP detractor—jumped by 5.5%, led by a 3.6% drop in consumer goods.

The value of goods stacked in the warehouses of U.S. wholesalers rose by 0.7% last in August, a slowdown from July's 1.3% growth. The inventory build-up in anticipation of potential war-related supply chain bottlenecks continues to wobble back toward equanimity.

Moving on to manufacturing, the Chicago purchasing managers' index (PMI) USCPMI=ECI jumped 11.7 points to print at 58.8, or 7.6 points north of economists' predictions.

A PMI reading above 50 indicates activity expanded compared with the previous month.

On Thursday, the Institute for Supply Management (ISM) is due to unveil its broader, nationwide PMI reading for September, which is seen picking up a bit of steam, ticking up 0.4 points to an even 55.0.

Finally, in the housing market, financing home loans is growing evermore costly, and would-be borrowers aren't having it.

The average 30-year fixed contract rate —which tends to rise and fall in tandem with benchmark Treasury yields—jumped 18 basis points, to 7.30%. according to the Mortgage Bankers Association (MBA).

As a result, demand for loans to purchase homes fell 4.3%, and refi applications tumbled 8.7%, marking a net 6.0% drop in total demand.

The 30-year fixed rate is currently 84 basis points hotter than it was during the same week a year ago, during which time purchase applications have dipped 14.2%, while refi demand slid 56.4%.

(Stephen Culp)

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