By Theresa Sheehan, Econoday Economist
August 1, 2022
First, a quick look back to put this week’s data into context. July 28 saw the release of the advance estimate for second quarter GDP with a decline of 0.9 percent following 1.6 contraction in the first quarter. While there will be worries that the US has slipped into recession, it is important to remember that the GDP numbers are backward looking to the April-June and January-March periods. The second quarter estimate is based on a number of assumptions that may or may not be accurate. The GDP number will be revised in the second estimate on Thursday, August 25 at 8:30 ET and then a third estimate – inclusive of annual revisions – on Thursday, September 28 at 8:30 ET.
The National Bureau of Economic Research (NBER) – the arbiter of recession dating – takes its time to ensure that all appropriate data are in hand before declaring a recession. With a big GDP revision on the horizon, it is doubtful that the NBER committee would make a determination before more numbers are available.
In the meantime, some fresher data will help shape expectations for growth in the third quarter that might lift some of the gloom.
There’s nothing more important in the week ahead than the July employment situation at 8:30 ET on Friday, August 5. It is likely to see some slowing in payroll growth and perhaps a tick upward in the unemployment rate. This isn’t necessarily bad as Fed policymakers work to get inflation down by bringing supply/demand imbalances into better alignment. This includes getting the number of job openings down to a healthier proportion relative to the size of the labor pool. A slight loosening in the present tight labor market is not automatically a prelude to recession.
Note that based on historical patterns, July nonfarm payrolls have a tendency to come in below more often than above expectations. The current Econoday consensus is at up 250,000. July can be difficult to forecast because of variations in local school system hiring, the beginning of the local school year, and the timing of summer educational programs. It can also pick up some late hiring of high school and college graduates.
The JOLTS job-opening data for June at 10:00 ET on Tuesday, August 2 will help update the outlook, although the data lags the employment numbers by a month. The Challenger report on job-cut and hiring intentions for July at 7:30 ET on Thursday could also help shape perceptions of labor market conditions. There will be, for a second month, no national employment report from ADP which is working with the Stanford Digital Economy Lab on a new methodology; the report is scheduled to be reintroduced around August 31.
The ISM manufacturing index at 10:00 ET on Monday, August 1 and the ISM services index at 10:00 ET on Wednesday, August 3 are both for July. These will get a close look to see if there’s a hint of recession in either sector or if these will remain consistent with a shift to slower growth but not outright contraction.