Implications: After hitting some clay in the second quarter, the plow horse economy is picking up a little speed in Q3. The ISM services index came in higher than the consensus expected in July, signaling a combination of some acceleration in that sector and an abatement of negative sentiment regarding Europe. The best news in the ISM services report is that the sub-index for business activity – which has a stronger correlation with economic growth than the overall index – spiked higher by 5.5 points to 57.2, more than fully rebounding from last month's decline. However, the report did contain some disappointing news, too. The employment index fell to 49.3 from 52.3, the first reading below 50 so far this year. We would take this with a grain of salt, though, considering the job gains in today's employment report. On the inflation front, the prices paid index rose to 54.9, a rebound from the last two monthly readings, which were below 50. This is consistent with our view that the recent lull in inflation is temporary given the loose stance of monetary policy. In other recent news, new claims for unemployment insurance increased 8,000 last week to 365,000, almost exactly matching the four-week moving average of 365,500. Continuing claims for regular state benefits declined 19,000 to 3.27 million. In still other news, autos and light trucks were sold at a 14.1 million annual rate in July, 2% below June but up 13.6% from a year ago.
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Posted on Friday, August 3, 2012 @ 10:57 AM
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