Week's data to show strength in exports, construction, labor markets
In passing an opportunity to raise interest rates last month, the Federal Reserve needed more evidence of an economic rebound. A flurry of data that will be released this week should bolster its expectation of hiking rates in December, as the economy shows continued strength after the tepid first half of the year.
“We expect data for September to show that economic activity expanded at a better pace following a broad-based slowdown in August,” wrote Lewis Alexander, an economist at Nomura, in a note Friday.
On Monday, the U.S. Commerce Department will release construction spending for August, and it's expected to reflect volatility in the sector. Analysts expect a 0.3% month-over -month increase in August after no growth in July. Robust construction activity in the private sector was partially offset by declines in government activities.
“We think that private non-residential construction activity may slow in coming months, as there are signs that credit conditions are tightening in the commercial real estate market,” Alexander wrote. But construction activity in the housing sector could make up for some of the losses, he said.
Economists will have some clarity on U.S. factories when the Institute for Supply Management releases its monthly manufacturing index Monday. The sector has been sluggish, with a three-point drop in August to 49.4. A reading above 50 indicates expansion, while anything below means contraction.
Other manufacturing data for September and falling commodity prices for raw industrial goods point to a decline for a second month. “The early read on the manufacturing sector for September has been also weak,” Alexander says, adding he expects the index to decline to 49 in September.
U.S. trade balance data will be released Wednesday by the Commerce Department, and it continues to tilt in favor of U.S. manufacturers. The total trade deficit likely narrowed to $39 billion in August from $39.5 billion a month earlier, Alexander estimates.
“Exports have been growing at a steady rate, which is a promising sign that the negative impact of the stronger dollar on U.S. goods is finally starting to wane and global demand is starting to improve,” he wrote.
Preliminary data indicate that exports grew by 0.7% month-over-month in August, Alexader writes. Imports are estimated to have risen 0.4%.
U.S. factory orders data, to be released on Wednesday by the Commerce Department, could reflect a slowdown in the manufacturing sector. Factory orders are estimated to have declined by 0.5% in August, Alexander wrote. “The advance estimate on durable goods manufacturing activity was broadly weak in August,” he wrote.
Robust labor market conditions have been a singularly bright spot in the economy. And the initial jobless claims report, to be released by the Labor Department on Thursday, will likely underscore economists’ optimism. “Initial jobless claims have been at or below the 260,000 threshold throughout September. This is a good sign that layoffs are low and labor market conditions remain healthy,” Alexander wrote.
It will be followed Friday by the employment report from the Labor Department. Alexander estimates businesses added 214,000 workers in September, including 160,000 in non-farm payrolls. That would be a marked acceleration from August, when employers added 151,000 workers.
The August slowdown — following gains of 271,000 and 275,000 in the previous two months — alarmed some economists. But “data on the labor markets remain, on balance, sanguine,” Alexander says.