The U.S. is winning and Europe is losing.
That’s the basic gist of the diverging global economic stories.
Deteriorating data out of Europe has the European Central Bank surprising us with more monetary policy easing while strong U.S. economic data has Federal Reserve officials saying we should prepare for earlier tightening.
Even Friday’s relatively disappointing August jobs report was arguably good.
Here’s your Monday Scouting Report:
The Good From The Ugly Jobs Report: The August jobs report was a big whiff. U.S. companies added just 142,000 nonfarm payrolls during the month, missing expectations for a gain of 230,000. The prior two months saw their payroll numbers revised down by 28,000.
But otherwise, the report had some good details that should have us encouraged.
“Fortunately, a number of areas showed improvement, including those that speak to the structural health of the labour market,” wrote Allianz’s Mohamed El-Erian. “Long-term unemployment fell by 192,000 to 3 million while the rate of teenage unemployment declined from 20.2 per cent in July to 19.6 per cent in August, a full three percentage points lower than a year ago. Annual wage growth edged up to 2.1 per cent, led by a stronger private sector. And the improvements in both conventional and broader unemployment measures, while slight, were genuine and not due to a decline in labour participation.”
- Consumer Credit (Mon): Economists estimate consumer credit balances increased by $US17.0 billion in July. “Non-revolving consumer credit growth has accelerated in recent months (likely due to an increase in auto loans), while revolving credit continues to grow at an anemic pace,” noted Nomura economists.
- Job Opening & Labour Turnvover Survey (Tues): Economists estimate the JOLTS report will reveal 4.711 million U.S. job openings in July. From Credit Suisse: “JOLTS (Job Openings and Labour Turnover Survey) has garnered more attention lately as Fed Chair Yellen often cites the survey when assessing the state of the labour market. In June, JOLTS job openings continued to strengthen, rising to 4.7M and job vacancies per unemployed worker increased to 0.49, the highest level since May 2008. The ratio of vacancies to unemployed workers has risen much faster than its post-crisis trend for three months in a row, providing further confirmation that the US labour market has indeed shifted to a period of stronger growth. However, the rate of hiring rose only slightly and quits were unchanged in June, remaining well below pre-crisis levels.”
- Initial Jobless Claims (Thurs): Economists estimate weekly initial claims ticked down to 300,000 from 302,000 a week ago. “Initial claims have hovered around 300k (near pre- recession lows) for the past couple of months and should continue to do so as labour markets tighten,” said Nomura economists. “Note that we could see some volatility in claims in coming weeks from the Labour Day holiday and the mass layoffs at Atlantic City casinos.”
- Monthly Budget Statement (Thurs): Economists estimate the U.S. budget deficit was $US130.0 billion in August.
- Retail Sales (Fri): Economists estimate sales climbed by 0.6% in August, or 0.4% excluding autos and gas. “While retail sales growth has been softening on a month-over- month basis, we continue to see relatively strong year-over-year gains,” said Wells Fargo’s John Silvia. “The recent pickup in revolving consumer credit may help support retail sales going forward, as consumers become more comfortable relying on their credit cards again for spending amid continuing improvement in people’s views on the economy and financial standing.”
- Univ. Of Michigan Confidence (Fri): Economists estimate this index of sentiment climbed to 83.5 in September from 82.5 in August. “With broad equity indexes near record highs and gasoline prices falling, the University of Michigan’s consumer sentiment index for early September probably will reflect some of the improvement already captured in late August,” said Credit Suisse economists. “However, the gain in the headline sentiment index probably will be mitigated by continued pessimism about future wage growth.”
At least a few top stock market strategists believe this bull market is far from over. On Tuesday, Morgan Stanley’s Adam Parker predicted that the S&P 500 could go from around 2,000 today to 3,000 in about five years before the bull market ends.
“We believe a prolonged period of deleveraging in the U.S., coupled with an uneven global recovery, are just two of the reasons why this could prove to be the longest U.S. expansion — ever,” Parker wrote.
RBC Capital Markets’ Jonathan Golub shared a similar sentiment in a research note publish around the same time as Parker’s.
“Earnings projections for 2015 — 16 have been rising since April, reversing a downward trend,” Golub wrote. “We believe this reflects growing optimism (especially among CEOs via stronger guidance) on the direction of the economy. Given a lower cost of capital and enhanced growth prospects, we see further upside to stocks over the next several years.“
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