US data reviewed - Nomura

Analysts at Nomura offered a review of the US data performance from overnight.

Key Quotes:

"Chicago PMI: The Chicago PMI decreased by 6.8pp in July to 58.9, slightly below consensus (Nomura & Consensus: 60.0) and the first decrease in six months. However, businesses overall appear upbeat considering the headline index sitting just below the six-month average of 59.6. Last month's reading was the highest since May 2014, so some moderation is not surprising. The new orders and production indices both declined, by 11.6pp and 6.9pp, respectively, but remain within the expansionary territory, indicating continued growth albeit at a slower pace than in recent months. The employment index fell slightly by 4.0pp. Although still elevated, this reading suggests slower growth in hiring. Over the past few months, manufacturing activity has improved steadily, but the pace of that improvement appears to be moderating. Note that the July ISM manufacturing survey will be released tomorrow. 

Pending home sales: Pending home sales increased 1.5% m-o-m in June, following a 0.7% decline in May. June marked the first increase in pending home sales in four months, but the uptick could be short-lived as supply constraints continue to throttle the housing market. However, a slight boost in pending home sales (contracts signings) suggest a possible rebound in existing home sales (contracts closing) in the following month. Existing home sales fell 1.8% in June as supply constraints continue. Overall, consumer fundamentals remain strong for the housing market, but low supply has remained as an ongoing challenge. 

Senior loan officer survey: The Federal Reserve indicated in the report that standards on commercial real estate loans tightened in Q2 while demand weakened on net. On the other hand, lending standards on residential real estate (RRE) loans eased moderately on balance. Demand for RRE loans was reported to have little changed, on balance. The survey respondents also indicated weaker demand for commercial and industrial (C&I) loans for firms of all sizes although C&I loan lending standards were largely unchanged. Some common reasons for weaker demand for C&I loans according to the respondents are decreases in customers’ need to finance inventory, accounts receivable, investment in plant or equipment, and mergers or acquisitions. Decreases in need to finance investment in plant or equipment, in particular, may have been a reflection of the high uncertainty about the outlook for government policy in health care, regulation, taxes, and trade. 

On the consumer side, respondents reported tightening lending standards on auto loans and credit cards as well as weaker demand for these loans. Weaker demand for credit card loans is coupled with a modest net fraction of respondents reporting increases in minimum credit score for the credit card loans. Further, the tightening of standards on auto loan is a continuing trend from recent quarters in response to moderate increases in delinquency rates on auto loans. The recent tightening has modestly improved the composition of auto loans, with more origination from the prime group, according to NY Fed Consumer Credit Panel data. However, tighter standards have been weighing down on consumer auto sales in recent months, which now hover much below the 2016 average pace of 17.5m units. Consistent with this trend, the senior loan officer survey reported that the respondents' subprime consumer loan standards were tighter than the midpoints since 2005, while prime consumer loan standards are easier than the midpoints."