US Economy: A little more durable? - ANZ

Research Team at ANZ, suggests that one of the more perplexing elements of the US expansion of late has been the weakness in business investment and was a key contributor to soft Q2 GDP growth, which was only really saved by stronger private consumption.

Key Quotes

“There are many views on why businesses have lacked the desire to invest, but it is certainly not a great signal for productivity (which has also been weak). But the latest durable goods data hint that a recovery in investment could be underway. The data is volatile and not exceedingly strong, but a step in the right direction nonetheless.

Durable goods orders for July came in firmer than expected, up 4.4% m/m from a downwardly revised -4.2% (initial: -3.9%). Underlying details were firmer with positive revisions to the data. Gains were broad-based with communication and other durables the only contracting segments. Overall, a decent durables number to start Q3.

Initial jobless claims fell 1k to 261k (mkt: 265k) for the week ended 20 August. Filings have been below 300k for 77 consecutive weeks – the longest stretch since 1970 and are consistent with continued improvement in the labour market.

Headline Markit flash services PMI came in softer than expected at 50.9 (mkt: 51.8; last: 51.4). While this is the lowest reading since February 2016, it still marks the sixth consecutive month of expansion (>50).

The Fed’s Ester George remained hawkish, stating “I don’t think that we are going to need to have high interest rates. I don’t think we need to cool off the economy by any means. But I do think that it would be appropriate to begin the process of continuing that normalization”. Fed’s Dallas President Kaplan noted that the case for removing accommodation is strengthening and that they are moving toward taking another step in the “not too distant future”.”