Introduction

In a week thankfully free of inflation data, good news is the theme especially for manufacturing  but not including housing which continues to limp along. Janet Yellen was expected to grab the headlines with her Jackson Hole speech which did include opposition to financial deregulation but surprisingly did not offer any hints at all on the progress of monetary policy. This left durable goods orders as the week's top news where a 6.8 percent headline swoon, reflecting a down swing for aircraft, masked solid strength below.

The economy

Excluding transportation (where aircraft are tracked), July durable goods orders rose to $154.8 billion for a strong 0.5 percent gain from June. Durable orders aren't exactly on fire but they are moving up, rising consistently from under $145 billion in June last year. A special plus, which likely helped July's strength, is the weakness in the dollar which fell sharply during the month. Like orders, shipments of ex-transportation durables are also moving higher, to $158.2 billion for a 0.4 percent monthly gain.

Orders for core capital goods, up 0.4 percent, are also one of July's strengths. Gains here have been slowing the past couple of years but the trend since April is positive. Perhaps July's best plus is shipments of core capital goods which jumped 1.0 percent with June revised to 0.6 percent. These results are good for GDP. Note that the core excludes defense, where capital goods are used to produce defense goods, not business or consumer goods, and it also excludes aircraft due the enormous monthly swings.

And aircraft was not alone in pulling down the transportation component as vehicle orders, tracked in the blue line of the graph, came in at only $53.6 billion for a 1.2 percent monthly dip. Vehicle orders have been flat the past 2 years but may soon be moving lower based at least on sales of domestic-made vehicles which have broken sharply lower, to a 13.2 million annualized rate the past 2 months from plus 14 million during the second half of last year. This is not good news for auto jobs.

But the durables report on the whole is good news. And what should we expect for August? Advance signals from regional Feds are strong. New orders in the Richmond and Kansas City samples are at their best levels in months. But these early signals, derived from small voluntary samples, have been far stronger than actual final results. The red line tracks monthly change in total ex-transportation orders which here include nondurables (part of the factory orders report).

Turning to the housing sector, disappointment should be the expectation. Housing has been flattening out at expansion highs and may be moving lower. New home sales fell to a 571,000 annualized rate in July to pull down this year's trend line. Existing home sales are little better, falling to a 5.440 million rate with this trend on the same slope. Why the weakness? Home prices, up an annual 6 percent or so, aren't helping and neither are low wages. Also holding down sales is lack of choice.

Low supply of homes on the market has been housing's unwanted feature. The number of new homes for sale did rise in July to 276,000 but the number of housing permits, in data released in the prior week, is surprisingly flat which doesn't point to much building ahead. Existing homes for sale have already been edging lower, to 1.920 million. Holding down existing homes on the market is the lack of new homes which limits the number of homeowners swapping their old digs for new ones.

However hot or cold housing and manufacturing may be, the labor market is by far the single greatest strength of the economy. Layoffs remain minimal as employers hold onto their employees like never before. Initial claims have unexpectedly moved below 240,000 with the 4-week average, at 237,750, as low its been since May and before that since the early 1970s when the workforce was nearly half the size it is now. Continuing claims are also at deep lows with this 4-week average at 1.958 million.

Not only are claims low but they've been steady at lows which is a surprise given summer retooling in the auto industry which makes for brief factory shutdowns and spikes in initial claims. The graph tracks the bumpy ride typical of all unadjusted data; this set for initial claims showing the rise and spike over 275,000 in early July. Adjustments smooth out this curve and were very accurate this year. States showing the greatest retooling effects are Michigan, Ohio, Missouri and Kentucky.

Markets: Yellen's sound of silence

Yellen's decision not to touch the balance-sheet topic was unexpected, a silence that voices perhaps her own uncertainty whether September is a good time to unwind. Employment is strong but wages and inflation are dormant and there's the October risk of a government shutdown. Not silent was President Trump who warned at midweek that a shutdown is indeed possible if Congress doesn't fund the wall. A bumpy week, yes, but the Dow, at 21,813, ended with a 0.6 percent gain.

It was also a good week for exporters as the dollar index fell some more, down 0.9 percent to 92.56 for a year-to-date loss of 9.5 percent. Dollar weakness makes US goods & services less expensive but it also makes US stocks & bonds less attractive to foreigners. Who wants a security in a currency that's down? And who wants to sell oil when a hurricane's hitting Texas? But oil fell, not rose, as Harvey and its promise of shutdowns edged toward shore. At $47.79, oil fell 1.7 percent on the week.

The bottom line

Yellen's decision not to address monetary policy in her Friday speech underscores everyone's uncertainty whether the Fed will begin unwinding its balance sheet at the upcoming FOMC on September 19 & 20. Helped perhaps by manufacturing but not by housing and certainly not by inflation, the economy continues to chug along. The next major signal for September's meeting will be the upcoming employment report where strength and especially improvement in wages could tilt the odds, government shutdown or not, toward September tapering.

Week of August 28 to September 1

Whether the Federal Reserve begins to unwind its balance sheet at the September FOMC may very well pivot on the outcome of the August employment report on Friday. Strength is the wide expectation and would raise the chances for a September start. There will also be important inflation data in the week: PCE price indexes as part of Thursday's personal income and outlays report which will offer a final look at July's pressures followed by average hourly earnings in the employment report which will offer a first look at August's pressures. Weakness in inflation, in contrast to strength in employment, could lower the chances for September unwinding. There will be other important data as well including advance trade in goods on Monday that will set the first piece for third-quarter net exports and also pending home sales on Thursday that will define expectations for existing home sales in August. With consumer confidence on Tuesday and consumer sentiment on Friday, consumer psychology will also be a focus as attention turns to the effects, if any, from violence in Virginia and tension with North Korea.

Monday

International Trade In Goods for July

Consensus Forecast, Month-to-Month Change: -$64.1 billion

Consensus Range: -$67.3 to -$63.0 billion

The goods deficit in July is expected to narrow to a consensus $64.1 billion. For comparison, the goods deficit was $65.3 billion in June and averaged $67.0 billion per month in the second quarter. June's data included gains for exports of food and capital goods and declines for imports led by industrial supplies and consumer goods. Advance data for wholesale and retail inventories in June, which will also be inputs into third-quarter, will also be released with this report.

Dallas Fed General Activity Index for August

Consensus Forecast: 15.7

Consensus Range: 15.0 to 17.0

The Dallas Fed manufacturing report, in line with other regional reports, has been posting very strong rates of growth with forecasters seeing little cooling. The general activity index is seen coming in at 15.7 in August vs 16.8 in June.

Tuesday

Case-Shiller, 20-City Adjusted Index for June

Consensus Forecast, Month-to-Month Change: 0.5%

Consensus Range: 0.2% to 0.8%

Case-Shiller, 20-City Unadjusted Index

Consensus Forecast, Year-on-Year Change: 5.7%

Consensus Range: 5.7% to 5.9%

Case-Shiller has been solid but still lagging other data on home prices. The consensus for June's 20-city adjusted index is plus 0.5 percent vs a 0.1 percent gain and a 0.2 percent decline in the two prior months. Year-on-year, the unadjusted index is expected to come in unchanged at 5.7 percent.

Consumer Confidence Index for August

Consensus Forecast: 120.0

Consensus Range: 118.0 to 124.2

The consumer confidence index has been easily beating the consensus in recent months, coming in at an unusually strong 121.1 in July with forecasters once again calling for a fall back, to 120.0 in August. The current job assessments, including the closely watched jobs-hard-to-get, have been very strong and consistent with high levels of employment. Inflation readings, in contrast, have been very soft.

Wednesday

ADP, Private Payrolls for August

Consensus Forecast: 182,000

Consensus Range: 145,000 to 200,000

ADP, which has been wild at times this year, did call for improvement in July payrolls, just not enough. The Econoday consensus for August's ADP is 182,000 vs an actual 205,000 in July that compares with ADP's own July call for 178,000.

Real GDP: 2nd Quarter, 2nd Estimate, Annualized Rate

Consensus Forecast: 2.8%

Consensus Range: 2.5% to 3.0%

Real Consumer Spending, Annualized Rate

Consensus Forecast: 3.0%

Consensus Range: 2.8% to 3.5%

GDP Price Index

Consensus Forecast: 1.0%

Consensus Range: 1.0% to 1.0%

The second estimate for second-quarter GDP is expected to improve from the first, to a consensus 2.8 percent vs the initial 2.6 percent rate. The consumer spending component is also expected to improve with the consensus at 3.0 percent vs an initial 2.9 percent. Inventories were slightly negative in the first estimate with net exports slightly positive. Inflation data have been very soft, at 1.0 percent for the GDP price index in the first estimate with 1.0 percent also expected for the second.

Thursday

Initial Jobless Claims for August 26 week

Consensus Forecast: 237,000

Consensus Range: 236,000 to 240,000

Weekly jobless claims have held steady at historic lows this summer. Forecasters sees initial claims coming in at 237,000 in the August 26 week vs 234,000 in the August 19 week.

Personal Income for July

Consensus Forecast, Month-to-Month Change: 0.4%

Consensus Range: 0.3% to 0.5%

Consumer Spending

Consensus Forecast, Month-to-Month Change: 0.4%

Consensus Range: 0.2% to 0.5%

PCE Price Index

Consensus Forecast, Month-to-Month Change: 0.1%

Consensus Range: 0.0% to 0.2%

PCE Price Index

Consensus Forecast, Year-on-Year Change: 1.4%

Consensus Range: 1.4% to 1.5%

Core PCE Price Index

Consensus Forecast, Month-to-Month Change: 0.1%

Consensus Range: 0.1% to 0.2%

Core PCE Price Index

Consensus Forecast, Year-on-Year Change: 1.4%

Consensus Range: 1.4% to 1.6%

Both personal income and consumer spending were very weak in June, unchanged for the former and up only 0.1 percent for the latter. These results make for easy monthly comparisons and Econoday's July consensus calling for 0.4 percent gains for both income and spending. The spending side will mark the first leg of consumer spending for third-quarter GDP. Price data have been completely lifeless and not much improvement is expected. The PCE price index is seen inching 0.1 percent higher vs no change in June with the year-on-year rate unchanged at 1.4 percent. Core PCE (less food & energy) came in at plus 0.1 percent in June and a yearly 1.5 percent with forecasters looking in July for another monthly 0.1 percent gain for a year-on-year rate, however, of only 1.4 percent.

Chicago PMI for August

Consensus Forecast: 58.0

Consensus Range: 57.5 to 61.6

After 5 months of acceleration and a 3-year high, the Chicago PMI finally slowed in July but not very much, coming in at 58.9 with the August consensus at 58.0. Both new orders and backlog orders have been unusually strong. This report, which can be very volatile, tracks both the non-manufacturing and manufacturing sectors of the Chicago-area economy.

Pending Home Sales Index for July

Consensus Forecast, Month-to-Month Change: 0.8%

Consensus Range: -0.2% to 0.8%

Pending sales bounced back 1.5 percent in June but failed to help final sales of existing homes in July which fell sharply for a second month in a row. Forecasters see pending sales rising again, up a consensus 0.8 percent in July.

Friday

Nonfarm Payrolls for August

Consensus Forecast: 180,000

Consensus Range: 147,000 to 205,000

Unemployment Rate

Consensus Forecast: 4.3%

Consensus Range: 4.3% to 4.4%

Private Payrolls 

Consensus Forecast: 177,000

Consensus Range: 140,000 to 200,000

Manufacturing Payrolls 

Consensus Forecast: 9,000

Consensus Range: -10,000 to 14,000

Average Hourly Earnings

Consensus Forecast, Month-to-Month Change: 0.2%

Consensus Range: 0.1% to 0.3%

Average Hourly Earnings

Consensus Forecast, Year-on-Year Change: 2.6%

Consensus Range: 2.6% to 2.7%

Average Workweek

Consensus Forecast: 34.5 hours

Consensus Range: 34.5 to 34.5 hours

Nonfarm payroll growth has been on a 2-month surge, rising 209,000 in July following a 231,000 gain in June. Forecasters are looking for cooling in August where Econoday's consensus is 180,000. The unemployment rate is seen steady at 4.3 percent while average hourly earnings are not seen repeating July's respectable 0.3 percent showing, called instead at a 0.2 percent gain. In an offset, however, year-on-year earnings are seen rising 1 tenth to 2.6 percent. Other calls are for a 177,000 rise in private payrolls, a 9,000 gain for manufacturing payrolls which would be on top of July's 16,000 surge, and no change in the workweek at 34.5 hours.

ISM Manufacturing Index for August

Consensus Forecast: 56.6

Consensus Range: 56.5 to 57.5

The ISM manufacturing index has been strong this year, holding over 55 the last two reports including 56.3 in July. Both new orders and backlog orders were unusually strong in July which points to general strength for the sample's activity in August. And forecasters are calling for continued strength in August, at a consensus 56.6.

Construction Spending for July

Consensus Forecast, Month-to-Month Change: 0.6% 

Consensus Range: -1.3% to 1.0%

Construction spending has been very soft this year, falling an unexpected 1.3 percent in June for a year-on-year gain of only 1.6 percent. Residential spending was held down in June by weakness in multi-family units while nonresidential spending saw sharp contraction in public building. The Econoday consensus is looking for a 0.6 percent bounce higher in July.

Consumer Sentiment Index, Final August

Consensus Forecast: 97.2

Consensus Range: 93.0 to 98.0

The consumer sentiment index jumped sharply in the preliminary August report, up 4.3 points to 97.6 for the best result since January. But the report warned that the month's preliminary sampling did not include the full impact of the violence in Virginia. The consensus for the final August reading is for some pull back from the flash, at 97.2.

Total Unit Vehicle Sales for August

Consensus Forecast, Annualized Rate: 16.7 million

Consensus Range: 16.5 to 16.8 million

North American-made Unit Vehicle Sales

Consensus Forecast, Annualized Rate: 12.8 million

Consensus Range: 12.8 to 13.1 million

Unit vehicle sales edged higher in July in contrast to dollar sales in the retail sales report where vehicles jolted higher. Though unit sales don't include price effects and are clouded by sales to businesses, they will nevertheless offer the first hint at the strength or weakness of consumer spending in August. Forecasters see total unit sales coming in unchanged in August at a 16.7 million annualized rate with sales of domestic makes, however, falling to 12.8 million vs July's 13.2 million.