KEY DATA: ADP Jobs: 179,000/ ISM (NonManufacturing): -1 point; Orders: +0.4 point; Hiring: -1.3 points/ HWOL: +156,800

IN A NUTSHELL: “The July data are pretty decent, but we still have the big-dog, the employment report, on Friday.”

WHAT IT MEANS: It looks like the economy is continuing to grow moderately, despite what Fed members and skittish investors may think, and today data support that view. The key number this week, as it is every week it is released, is the monthly employment report. ADP’s estimate of private sector job gains points to a very solid number on Friday. It may not be nearly as strong as June’s number, but that just offset the oddly weak May number. What was nice to see was a fairly even distribution between companies of all sizes. Large firms had been doing very little on hiring front but that may have started changing. There were also decent gains in every industry except construction.

Adding to the belief that Friday’s number could be good was the sharp rebound in the Conference Board’s Help Wanted Online numbers. The labor market is not quite as robust as it was a year ago, but it is still tight and continues to tighten.

With manufacturing not doing much, it has been left up to the services and construction sectors to support growth. That is still happening. The Institute for Supply Management’s NonManufacturing index fell in July, but the level remains high. Only three of eighteen industries were in decline, with one of them being mining. Low oil prices continue to restrain growth. Importantly, orders grew faster. Whether it be manufacturing or nonmanufacturing, demand is growing strongly despite the declines in the overall ISM indices. Similar to the manufacturing report, hiring grew more slowly and that is a concern.

July vehicle sales look like they were pretty solid. What is amusing is that the rate, which was about 17.8 million units annualized, was not considered to be strong. It is and the reaction shows the failure to understand the difference between current levels and sustainable levels. The consumer is spending on big-ticket items and that is key to solid economic growth.

MARKETS AND FED POLICY IMPLICATIONS: The Fed didn’t raise rates in June because of a soft jobs report and uncertainty over Brexit. Then when the employment numbers rebounded and it became clearer that Brexit would not likely have a major impact on the economy, the members started saying they need stronger or even strong growth. While it is tough to hit a moving target, and the Fed’s target on what would get them to raise rates seems to move on a daily basis, the economy is trying to provide some basis for the resumption of the normalization process. Remember, we are talking normalization here, not jamming on the brakes. The data for July may not point to a “strong” economy, but they indicate growth is solid. For at least two years, the economy has been decent enough for the Fed to have raised rates periodically. The members have been disinclined to do that so they keep coming up with new excuses. A “strong” economy may be unreasonable and that may be the reason some of the members are now hinting at that requirement. Of course, that is today’s hurdle. Who knows what will be tomorrow’s – or after Friday’s employment report.

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