Economics Update:The ADP survey estimated that private nonfarm payrolls increased 42,000 in July

Economics Update

·         Jobs - The ADP survey estimated that private nonfarm payrolls increased 42,000 in July. Recently, the ADP survey has not been an accurate predictor of the BLS payroll numbers which are being released this Friday. The ADP has underestimated the BLS value in 13 of the last 14 months by an average of 79,000. Adding this average error in under-prediction to the 42,000 estimate would generate a 121,000 increase in private-sector payrolls, although this is not viewed as a reliable way to predict the BLS data. 

·         US ISM non-manufacturing - The ISM nonmanufacturing index increased 0.5 points in July to 54.3 showing a slight expansion of manufacturing activity. This increase beat expectations for a slight decline in the index and made up about a third of the decline seen between May and June. July was the seventh straight month in which the index has remained above 50, which is the threshold for expanding activity. Business activity continued to grow in July, though at a slightly slower pace than in June; the measurement of business activity fell 0.7 points to 57.4. The most promising component of the index was employment which increased 1.2 points to 50.9. Though still low by historic standards, this is the highest employment reading since December 2007 and only the second month that employment has increased since then. Another good signal was the acceleration in growth of new orders from 54.4 in June to 56.7 in July.  

·         Euro area retail sales were flat in June and down 0.9%q/q saar in 2Q10.The stable trend of the past year remains in place though. The June outcome was a bit better than we had expected ahead of the release, given that sales fell 0.9%m/m in Germany (after a large gain in May) and 1.3%m/m in France after a string of monthly increases. Taken at face value, these falls in Germany and France imply good outcomes elsewhere in June, although the country data never perfectly sum to the Euro area aggregate due to separate seasonal adjustments.

·         Eurozone PMIs – comments from G. Fuzesi - The periphery just isn't breaking. Today's final PMI report contained the full country breakdown. The big surprise to us was the resilience in Spain. The Spanish composite PMI nudged up one tenth to 52.0, as a 0.4pt decline in services activity (to 51.3) was offset by a relatively large gain in manufacturing output. If the services PMI is used as a proxy for domestic demand, then the PMI does suggest that growth is softening. But, the incoming new business index in services actually rose 3pts to move back above 50 in July. And, overall, the Spanish economy is still expanding, even in services. Taken together, the Spanish PMI and EC surveys suggest that the economy may have expanded just above 1% annualised in 2Q10 and that this slowed to just below 1% annualised at the start of 3Q10. But, given that fiscal consolidation is well underway and that the VAT rate was increased at the start of July, the Spanish economy still appears to be performing better than expected at this stage. Overall, the country details in today's final PMI did not alter the Euro area aggregate.