By Danny Jasper, Senior Vice President, Capital Markets

Mortgages and treasuries saw improvement Monday morning as we start a busy week of economic data, culminated with the release of the July Non-Farm Payrolls (NFP) report on Friday.  We start this data-heavy week with reports on personal income and spending, as well as data on inflation from the PCE (Personal Consumption Expenditures) index, construction spending, and on manufacturing from the ISM.

Personal income and spending both came in right in line with expectations, as income was higher in June at +0.4% vs. +0.3% survey, but was revised one-tenth lower for May to get to a net neutral.  Spending was on the screws at +0.2%, but was revised lower in May from +0.9% to +0.7%.  The lower spending print may lead to a slightly lower revised Q2 GDP, which is now tracking to come in at 2.2% after printing at +2.3% last week.

Reports on consumption from the PCE index were improved, up 0.1% month-over-month and +1.3% year-over-year, but are still well below the Fed’s 2% target.  Construction spending for June missed at +0.1% vs. +0.6% estimate, but May was revised sharply higher from +0.8% to +1.8%, so the net result is quite promising.  Finally, the ISM manufacturing index printed at 52.7 vs. a 53.5 estimate, likely the result of recent strength in the U.S. dollar.

What to Expect from the Non-Farm Payrolls Report

Looking forward to Friday’s NFP report, economists are estimating employers added 225,000 new jobs last month, which would be right in line with the +223,000 from June.  The unemployment rate is expected to stay unchanged at 5.3%, and average hourly earnings are expected to rise +0.2% to a +2.3% year-over-year gain.

Investors are also hopeful that the labor force participation rate will rise off of last month’s weak 62.6% reading.  Weak wage growth and lower participation have softened investor optimism about the labor market even as jobs continue to be added at a solid clip and the unemployment rate falls, so those two readings may hold a stronger influence on markets than the headline print come Friday.

Highlights for this Week’s Economic Data Releases

Other highlights on the economic calendar this week include factory orders for June on Tuesday, ADP employment change, trade balance, and Markit US PMI reports Wednesday and jobless claims and Challenger job cuts on Thursday.  There are no pertinent government bond auctions this week.

Economic calendar for 8/3/2015 to 8/7/2015 below (courtesy of the FNMA trading desk):

economic data