Week’s Data to Show Moderate Pace of Economic Growth in USA

Week's Data to Show Moderate Pace of Economic Growth in USA

Volatility in the stock market last week provided a glimpse of investors’ pause as they wrapped up the second quarter. But a slew of economic data coming out this week will likely show that the economy is still humming along at a moderate pace with a steady, if not spectacular, labor market.

“We see a bit more inflation from increasing pressure induced by tighter labor markets,” wrote Lewis Alexander, an economist at Nomura, in a note Friday. But potential economic growth will remain low due to sluggish productivity growth and a decline of the labor force participation rate, he said.

U.S. construction spending data, out Monday, are expected to slightly rebound in May after a tepid April. A slowdown in both residential and nonresidential construction led to a 1.4% decline in April.

“Despite this decline, the underlying pace of construction spending appears to be steady,” fueled by private construction activity, Alexander said. “Active oil rig counts have been gradually rising, pointing to continued growth in energy-related structures investment.”

Auto sales data, expected from car manufacturers on Monday, could show a year-over-year decline because the industry is coming off record highs in 2016. But Nomura expects data to show slight improvement in June to an annualized pace of 16.8 million units from 16.6 million in May. Still, tighter consumer car loans lending and higher dealer discounts continue to pose challenges for the industry, Alexander said.

Employment continues to be a mixed bag for the economy. While the unemployment rate remains low, the pace of hiring seems to have slowed in recent weeks.

ADP’s employment report on Thursday will likely show an increase of 160,000 in private payrolls in June, slowing from 253,000 a month earlier, Nomura said. ADP is a human resources technology firm.

The more comprehensive employment report, expected on Friday from the Labor Department, is estimated to show an increase of 165,000 in nonfarm payrolls. That compares with the average payroll gain of 201,000 from December through February. Between March and May, growth slowed to an average of 122,000.

“Payroll employment growth has been trending lower in recent months,” Alexander said. “Yet, incoming data suggest continued strength in the labor market … In addition, initial jobless and continuing claims remained low in June, suggesting healthy employment gains in the month.”

Nomura expects the unemployment rate to be unchanged at 4.3% in June. “As more previously discouraged job seekers re-enter the labor force, we may see a slight uptick in the labor force participation rate,” Alexander said.

In aggregate, the data from the week will continue to show a moderate pace of growth that has marked the U.S. economy in recent months, he said. But “We see better growth in (the second half of 2017) and (the first half of 2018) due to some likelihood of fiscal stimulus from modest tax cuts,” he said.

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