US incoming data show solid momentum

Incoming data have increased the conviction that US economic activity accelerated during Q2 and will remain near that pace in Q3. The strength of key durable goods sectors, combined with improvement in consumer sentiment, indicates healthy Q3 household consumption. 

Total motor vehicle sales and the housing market is also showing momentum, with pending home sales up 1% m/m in May, but underperformance stemmed from a decline in GM fleet sales. The outlook for investment is also firming. Nonresidential construction spending is booming, rising by a further 1.5% m/m in May. The level of spending is approaching its pre-recession peak. 

Payroll growth returned to a more sustainable rate in June, but overall the report did not fundamentally change views about the outlook, nor it s expected to lead to a shift in views among FOMC participants. 

Services employment remained strong, increasing at a rate slightly above its recent average. The substantial drop in participation, which drove the two-tenths decline in the unemployment rate, was driven, in part, by statistical noise in the household survey. 

As a result, the FOMC members are not expected to take the unemployment rate decline at face value. Future payroll growth in line with our forecast should be more than sufficient to keep the unemployment rate on a downward trend, says Barclays.