The ISM Manufacturing Index is expected to fall to 50.6 in tomorrow’s update for September vs. the previous month, based on The Capital Spectator’s average point forecast for several econometric estimates. The prediction is fractionally above the neutral 50.0 mark. The estimate still translates into a forecast for growth for this benchmark of economic activity in the US manufacturing sector, but just barely.
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The pace of growth for private-sector employment picked up in September, according to this morning’s ADP Employment Report. US companies added 200,000 jobs to payrolls last month, a moderately stronger gain vs. a revised increase of 187,000 in August. The upbeat numbers suggest that Friday’s official jobs report from Washington will also deliver encouraging numbers for September. Meantime, today’s data throws cold water on the notion that the US economy stumbled this month.
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Last Friday I reviewed some of the bearish signals that were casting dark shadows across the US stock market. This week’s trading activity through Tuesday isn’t helping. Drawdown for S&P 500 as of yesterday (Sep. 29) has slipped deeper into the red, falling to -11.6%. The slide below the -10% mark triggered another red signal for the Crash Risk Index (CRI), which is again flirting with a clear warning—five of its 10 components are in the danger zone. Another leg down in the market would tip the scale decisively into the red (assuming that the current profile hasn’t already sent you running for cover).
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● US consumer confidence index rises in September | Reuters
● US home prices rise at slightly faster annual rate in July | WSJ
● US exports fall 3.5% in July vs. year-earlier level | WSJ
● Redbook: US retail sales at chain stores fall 1.5% in Sep vs. year ago | DJ
● Eurozone headline inflation is negative in Sep | RTT
● Germany retail spending falls in Aug after strong July | MarketWatch

Private nonfarm payrolls in the US are projected to increase by 172,000 (seasonally adjusted) in tomorrow’s September update of the ADP Employment Report vs. the previous month, based on The Capital Spectator’s average point forecast for several econometric estimates. The average projection reflects a modestly lower gain vs. the advance in August.
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The odds for a Fed rate hike are falling like a stone, or so it appears based on the implied inflation forecast via the yield spread on nominal less inflation-indexed Treasuries. The slide is especially pronounced for 10-year maturities, which are now pricing future US inflation at the lowest level–just below 1.4%–since the end of the last recession in 2009 (based on daily data from Treasury.gov as of Sep. 28). That’s substantially below the Fed’s 2% target. The accuracy of the Treasury market’s inflation projections are questionable, as always. Nonetheless, it’s clear that the crowd’s managing expectations down on the outlook for inflation.
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● US personal spending: +0.4% in August, matching July’s rise | BEA
● US disposable personal income: +0.4% in August vs. +0.5% in July | BEA
● US pending home sales fall in August, but still at “healthy” level | NAR
● Dallas Fed: Mfg contraction eases in September | Dallas Fed
● Eurozone Business Climate Indicator inches higher in Sep | EC

Today’s encouraging update on US personal income and spending for August raised the Atlanta Fed’s third-quarter GDP nowcast to 1.8% from 1.4% (seasonally adjusted annual rate). The revised GDP projection for the current quarter is still a sluggish pace and well below Q2’s strong 3.9% increase. But at least the revisions are moving in a positive direction. In fact, today’s update of the widely followed GDPNow model offers the highest growth rate since the Fed bank began publishing Q3 estimates in early August. That’s not saying much since the initial estimate was a tepid 0.9%. Nonetheless, in the current environment of bearish expectations, the sight of even minor upgrades for macro expectations is noteworthy.
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Consumer spending and disposable personal income—money available to spend or save after taxes—posted healthy increases in August, according to this morning’s update from the US Bureau of Economic Analysis. Personal consumption expenditures rose 0.4% last month, matching July’s gain. Disposable personal income’s (DPI) advance ticked down to 0.4% in August from 0.5% in the previous month, but that’s still an encouraging rate of growth. Meanwhile, the year-over-year gains for income and spending remained steady in the 4% range, suggesting that the consumer sector—the foundation for US economic activity–remains on track to deliver moderate if unspectacular increases in the near-term future.
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Value investors on the lookout for bargains have recently been eyeing up the battered corner of emerging market equities. At some point the selling will lay the foundation for a solid rebound. Judging by last week’s trading, however, there was no sign that a bullish inflection point is near. Stocks in emerging countries led the way lower last week through Sep. 25, based on the Vanguard Emerging Markets ETF (VWO). The fund was by far the worst performer among a set of proxies for monitoring the major asset classes.
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