US data reviewed: lowered Q2 GDP tracking - Nomura

Analysts at Nomura offered a review of the US data from overnight.

Key Quotes:

"ADP employment report indicated healthy growth in nonfarm private sector jobs in June, which rose 158k, near our expectations but slightly below consensus (Nomura: 160k, Consensus: 188k). All the gains came from the service-providing sector, with professional & business services increasing by 69k and education & health adding an additional 28k. While manufacturing employment increased by 6k, this gain was offset by a decrease of 4k in mining and 2k in construction, resulting in a flat net reading for the goods-producing sector. The ADP numbers today support our forecast of a healthy reading tomorrow for the BLS employment report for June, with some upside risk due to seasonal factors involving the Memorial Day weekend in May.

Initial jobless claims increased slightly for the week ending 1 July, ticking up by 4k to 248k, but remained within a low range in a tight labor market where firms are reluctant to let go of workers they may have a hard time replacing. Consistent with this view, the four-week moving average, a less volatile series, increased only 1k to 243k. For the week ending 24 June, continuing claims increased by 11k to 1956k. The four-week moving average of this series ticked up slightly to 1945k from 1938k. While continuing claims have increased for each of the past five weeks, this uptrend follows a steady decline during the first five months of 2017. On net, continuing claims have fallen by 125k this year. However, the recent leveling off of continuing claims implies that the rapid fall in the household unemployment rate since January may be moderating somewhat.

Trade balance came in at -$46.5bn for May, essentially in line with expectations (Consensus and Nomura:-$46.3bn), with a 0.4% m-o-m increase in exports and imports falling 0.1%. A rebound in exports appears consistent with elevated trade activity in global economies, but goods imports remained subdued with declines in autos and other consumer goods. Yet, goods imports in April were revised up slightly. Given that the advance goods trade data had been released a week earlier, there were no major surprises in today's data.

GDP tracking update: We lowered our Q2 GDP tracking estimate by 0.1pp to 2.4% q-oq saar after incorporating trade data. A slight upward revision to goods imports in April reduced our net exports estimate in Q2. On the other hand, net imports of capital goods came in stronger than we expected, suggesting more domestic business investment on equipment. On balance, the detailed components of the May trade report were slightly negative to Q2 GDP tracking. 

ISM nonmanufacturing index increased to 57.4 in June, slightly above consensus (Nomura: 57.0, Consensus: 56.5), from 56.9 of the prior month. The subindexes indicate broad-based strength. The business activity index remained highly elevated at 60.8, up 0.1pp from May, indicating improving business activity in the month. The new orders index increased to 60.5 from 57.5, implying further momentum in coming months. The prices paid index increased 2.9pp to 52.1 from 49.2, indicating increasing prices after some easing in May. The employment indicator remained elevated at 55.8 although 2.0pp lower than the prior month. The strength in this indicator points to continued strength in hiring activity in the nonmanufacturing sector. However, anecdotal evidence in the ISM report suggests continuing labor shortages in the construction industry, driving cost increases. The oil & gas sector reported a continued increase in activity, while the healthcare industry appears to be grappling with a high degree of uncertainty regarding the repeal and replacement of the Affordable Care Act. The retail trade industry reported an improved business outlook, which appears to support a possible rebound in June retail sales, set for release next week on Friday."