The Week Ahead: US jobs, core PCE inflation, Q2 GDP; eurozone flash inflation

Here's our pick of the key economic events in the week commencing Monday 28 August, through to Friday 1 September.

US non-farm payrolls (August) 

Fri 1: The US economy added 187,000 non-farm payrolls in July, according to the Bureau of Labor Statistics (BLS), as job creation was essentially flat compared to the June figure of 185,000, the lowest monthly reading this year. The unemployment rate fell to 3.5% in July, down from 3.6% in June. The report by payroll processing firm ADP, which has highlighted the US labour market’s resilience in recent months, pointed to a slowdown as it showed that the private sector added 324,000 jobs in July, down from 455,000 in June. Growth in average hourly earnings remains sticky, with private sector pay growing at twice the rate of headline CPI, while on the BLS measure pay growth remained steady at 4.4%. The BLS jobs report for August again seems likely to paint a picture of a resilient but slowing jobs market. Economists estimate that 160,000 non-farm payrolls were added this month, with unemployment remaining steady at 3.5%. It’s also worth keeping an eye on the number of job vacancies, which fell to just below 9.3m in June but remained well above pre-Covid levels of about 7.5m. The resilience of the labour market, with its robust levels of job creation and earnings growth, perhaps partly explains why the US Federal Reserve has not ruled out further interest rate hikes as policymakers fret that inflation could become more embedded.

US core PCE price index (July) 

Thu 31: While the odds continue to favour a Fed pause on rate rises when the central bank meets in September, markets are still concerned that sticky core inflation could mean we get another rate hike later this year. The Fed's preferred measure of inflation, the core personal consumption expenditures (PCE) price index, which excludes volatile food and energy prices, eased to 4.1% in June, having been stuck at 4.6% for three consecutive months up to and including May. Meanwhile, the overall PCE price index (including food and energy) fell to 3% in June, down from 3.8% a month earlier. The July inflation readings could prompt further concern about persistently high inflation. After consumer prices in the US rose 3.2% in the year to July, up from 3% in June, the PCE readings could show a similar uptick, with the core measure rising to 4.3% and the overall reading edging up to 3.3%.

US GDP (Q2)

Wed 30: The second estimate of US second-quarter GDP is expected to underline the resilience of the country’s economy. Economists’ forecasts suggest that Q2 GDP growth could be revised upwards to 2.5%, versus an initial estimate of 2.4%. Growth was driven by a rebuilding of inventory levels, which declined in Q1. Private domestic investment rose 5.7%, while defence spending increased 2.5%. Inflation also eased during the quarter, based on the core PCE price index, which showed that quarterly price growth slowed from 4.9% in Q1 to 3.8% in Q2. 

Here's our pick of the rest of the week's major economic and company events. 

Best Buy Q2 results 

Tue 29: We hear a lot about the strength of US consumers when Target or Walmart publish results, but electronics retailer Best Buy also offers a useful insight into US consumer behaviour. Since its Q1 results came out in May, the shares have performed reasonably well. The retailer posted Q1 earnings of $1.15 a share, modestly beating forecasts even as revenue fell slightly short at $9.47bn. Despite the revenue miss, the retailer reiterated its full-year forecast for revenue of $43.8bn to $45.2bn. For Q2, revenue is expected to come in at $9.52bn, with same-store sales expected to decline 6.35% as consumers reined in spending on big-ticket items like domestic appliances and consumer electronics. The company has been cutting headcount, laying off hundreds of staff in April, as it looks to improve its margins. Profit in Q2 is expected to come in at $1.08 a share.      

HP Q3 results

Tue 29: When HP reported its Q2 numbers at the end of May, the shares saw some modest selling, though the declines didn’t last long as the shares briefly pushed up to 11-month highs in July. When the company reported Q1 results, they projected Q2 revenue of $13 03bn, well below the levels of the same period in 2022. However, the results were slightly worse, as revenue sank 21.7% to $12.9bn. A drop in PC sales, down 29% to $8.18bn, accounted for the bulk of the overall decline. Profit, on the other hand, did beat forecasts, coming in at $0.80 a share. Adjusted operating margin also came in ahead of target. Nevertheless, HP cut its full-year EPS profit forecast to between $3.30 and $3.50 a share. For Q3, revenue is expected to fall to $13.36bn, with PC revenue expected to slip back to $8.79bn. Profit is expected to fall 20% to $0.84 a share.     

UK mortgage approvals, consumer credit (July) 

Wed 30: The number of mortgage approvals in the UK increased to 54,662 in June, up from 51,143 in May, partly because homebuyers sought to lock in fixed-rate deals before rates went even higher. Consumer credit was also resilient in June, jumping to £1.7bn –  a five-year high – and raising concerns that consumers were borrowing more to fund lifestyles more suited to a low interest rate environment. While unemployment remains close to historical lows, high levels of credit card borrowing shouldn’t be too much of a concern. However, if unemployment edges higher, we could see mortgage approvals and credit card borrowing slow down as interest rate hikes start to bite.

Salesforce Q2 results

Wed 30: Salesforce shares have been on a slow road to recovery. In December last year the shares hit their lowest levels since March 2020, having fallen almost 60% from the record highs of November 2021. When the company reported in June this year, the shares initially slipped back after full-year guidance was left unchanged. When the company reported in Q4, the outlook for Q1 put estimated revenue at $8.16bn to $8.18bn. That range was surpassed as revenue came in at $8.25bn, while profit also beat estimates, coming in at $1.69 a share. For Q2 the company raised its revenue outlook to $8.51bn to $8.53bn, though they decided to keep full-year revenue guidance unchanged at a minimum of $34.5bn. This was a decent increase from 2023’s $31.35bn, but was greeted rather underwhelmingly by investors. In July the company said it was raising prices. Profit is expected to come in at $1.90 a share. Since June, market consensus on full-year revenue has shifted higher to $34.66bn. Under normal circumstances, this should prompt a similar upgrade from senior management.  

Eurozone flash CPI (August) 

Thu 31: Amid concerns over deflationary pressures, markets have begun to price in a possible pause to eurozone rate hikes when the ECB meets in September. Since the start of the year, Europe’s central bank has doubled rates to 4%, but anxiety is growing as the German economy teeters on the brink of a third consecutive quarter of negative GDP growth. Producer prices are already in deflation, while manufacturing activity has fallen off a cliff. Despite this, headline inflation in the eurozone is running at 5.3%, while core prices are at 5.5%, just below their record highs of 5.7%. The flash estimate of CPI for August may not be the best guide to current trends, given that Europe tends to go on holiday for much of the month. However, there is growing concern that the ECB has raised interest rates too rapidly. A pause might be a useful exercise.      

Broadcom Q3 results

Thu 31: Just prior to publishing its Q2 numbers, Broadcom shares hit record highs after the company announced a multibillion-dollar deal with Apple for 5G radio frequency components for the iPhone. The shares have continued to make progress since that announcement on expectations that it will be able to benefit on the move towards AI. Q2 revenue rose almost 8% to $8.73bn, while profit came in at $10.32 a share, both of which were in line with expectations. For Q3 the company expects to see revenue of $8.85bn, while market consensus is for profit to match the Q2 figure. Broadcom’s acquisition of VMWare is yet to be finalised. The deal is facing regulatory scrutiny in the US, but has been approved by the UK’s CMA.

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SELECTED COMPANY RESULTS

Note: While we check all dates carefully to ensure that they are correct at the time of writing, company announcements are subject to change.

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