We have a very light data calendar. It is a short week with some post-vacation (ahem) attitude adjustment. There is little fresh news, but plenty of data from last week. FedSpeak is on high. It is a perfect setup for pundit pontification. Expect lots of navel gazing, with an emphasis on flaws. Many will be asking:

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What Can Go Wrong?

Last Week Recap

My expectation that last week would focus on jobs in the pre-Labor Day was pretty accurate, but also easy. There was plenty of competition from Harvey coverage. The economic news was solid leading into Friday’s payroll numbers. While that report was viewed as weak, it had little market effect.

The Story in One Chart

I always start my personal review of the week by looking at a chart of the overall market on a day-by-day basis.

Once again, we had a low-volatility, gentle climb. The avalanche of data and geopolitical news is not apparent from the chart.

The Silver Bullet

As I indicated recently I am moving the Silver Bullet award to a standalone feature, rather than an item in WTWA. I hope that readers and past winners, listed here, will help me in giving special recognition to those who help to keep data honest. As always, nominations are welcome!

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

The economic news generally positive. The employment report miss is the possible exception.

The Good

  • Q2 GDP was revised upward to 3%, beating expectations and suggesting a higher base for the rest of the year.
  • Global profit margins are higher. (Topdown Charts).

  • ADP employment showed a gain in private employment of 237K, up from 201K in July and beating expectations of 190K. I have frequently suggested that this report should be treated as an independent estimate of employment, not a forecast for the BLS announcement. I am working on a project to show why this is important.
  • Personal income increased 0.4% in July versus unchanged in June.
  • Bullish investor sentiment continues. David Templeton (HORAN) explains this contrarian indicator.

  • Core PCE Prices were 0.1% higher. This is the inflation indicator favored by the Fed. The continuing low reading suggests that the pace of interest rate increases will be modest.
  • The ISM manufacturing index improved to 58.5, a “sizzling” number according to Bespoke. The Chicago index showed similar strength.

  • Consumer Confidence remains high. The Conference Board – 122.9. Michigan sentiment – 96.8. Jill Mislinski has a nice update of the entire picture. Here is just one of the charts:


The Bad

  • Consumer spending increased 0.3%, up from June but trailed expectations of a 0.4% gain.
  • Construction spending had a surprising decline of 0.6% despite a positive expectation. Steven Hansen (GEI) reports, including his regular interesting comparison between spending and construction jobs.

  • Harvey effects. While everyone’s main concern is the human cost — loss of life, injuries, and destruction of homes – there have already been stories about the effects on various stocks and sectors. (Thanks to our friends in Texas – especially Houston – for letting us know how you are doing). I’ll stick to a couple of observations about the economic effects on the indicators we track. Despite the massive losses, perhaps $150 billion, the effect on GDP may actually be positive. It measures production without regard to the purpose. The immediate effect on gasoline prices was a spike higher, up about twenty cents per gallon at $2.54. Estimates call for another 15-20 cents before a plateau is reached. (MarketWatch). Bespoke says that it may be the End of an Era for the records in initial jobless claims.
  • Payroll employment dropped to a net gain of 154K and missed the 180K expectation. Average hourly earnings gains were also a bit light. As usual, the small “miss” was deemed by many to be major news. I wish more folks would read my guide for interpreting the employment report. Here are a few interesting takeaways. Please note that the results are from data collected before Hurricane Harvey.
    • CNBC collects a range of viewpoints from Wall Street economists. Goldman’s Jan Hatzius thinks that wages are on the path to improvement. Some others question the effect on the underlying trend. Diane Swonk (DS Economics) noted that the manufacturing increase was the best since 2012. (CF. Steven Hansen below).
    • Disappointing says Calculated Risk. Bill is especially unhappy with the meager wage growth.

  • New Deal Democrat sees the data as a sign of “late cycle deterioration.”
  • Steven Hansen (GEI) sees the report as “confused” with growth coming from the wrong places, i.e. “manufacturing and construction in a service economy.”
  • Harry Holzer (Brookings) explains that the current environment is just right for major gains, even if there is a current skill mismatch. Read the full post for interesting policy ideas.

    A tight labor market creates unusual opportunities for us to address these many challenges. Because employer demand for workers is now so strong, the usual questions about whether jobs really exist for better-skilled or more motivated workers are moot. In addition, employers who experience unusual difficulty hiring or retaining workers will likely be more open to training them and perhaps will hire more marginal applicants whom they would not otherwise consider.

    Indeed, tight labor markets do more to help disadvantaged workers than any policy interventions, and such policies will likely be more successful when markets are tight. After so many years of slack labor markets, with limited employer interest in such efforts, we must not let this opportunity go to waste.


  • A “clear link” between the opioid crisis and unemployment. Pedro Nicolaci da Costa at Business Insider describes the most recent research.
  • Eddy Elfenbein has his expected calm summary hitting the highlights – basic job increase, downward revisions to prior months, unemployment higher, earnings increase disappointing, Fed less likely to act. And, why it is important. He beats many of the major media sources by noting that changes are “net,” an important distinction.

The Ugly

Harvey donation scammers. What could be worse than seeking personal gain from the misery of some and the well-intentioned efforts of others. Here is some sensible advice to make sure that your help does the most good.


My fellow Michigan man, Trib columnist Eric Zorn has a great column shining a light on the problems in tax reform. Eliminating deductions in the interest of fairness sounds great, but is much more difficult when one looks at specific cases.

How do you feel about contributing nearly $1800 to help a rich Michigan fan buy a premium seat? That is the consequence of current tax policy. And not just at Michigan of course.

Multiply this by a few hundred provisions and you begin to see the problem.


The Week Ahead

We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react.

The Calendar

We have

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