This morning, two key economic reads hit the tape ahead of the opening bell: the first revision of Q2 GDP and the ADP (ADP - Free Report) private-sector payroll results were both better than expected. GDP hit 3.0% for this second read, up from 2.6% in the initial release and 20 basis points higher than analysts were expecting. ADP jobs posted a big 237K number, well beyond the 185K expected.
Personal consumption grew at a higher rate than earlier recorded, and corporate profits swung to a positive 0.8% in the quarter, up from a negative read the first time around. This demonstrates the economic strength many investors have been anticipating since the surprise win of President Trump last November, and shows enterprise confidence is indeed having a positive impact.
For the private sector payroll reads, ADP also revised its July total to 201K, 23K higher that in the initial read. Services once again supplied far more jobs than the Goods segment of the U.S. workforce, and the usual suspects of Trade/Transportation, Leisure/Hospitality and Education/Healthcare were the biggest gainers. Large companies (more than 500 employees) led the way with 115K new jobs for the month. We will look to see if analysts raise their estimates for Friday’s BLS non-farm payroll report, which currently expects 179K new jobs from the month of August.
Of course, Southeast Texas is currently in need of major rebuilding efforts, which should bolster Construction jobs, but we may not see the positive impact of this for at least a month, depending on when the numbers shake out. But there seems to be nothing in the way of continued growth with an improving global economy and a cheaper U.S. dollar helping prime the pump.
Harvey Recovery Update
Speaking of Southeast Texas, while it remains to be seen if Hurricane Harvey will be the most costly in U.S. history, much progress has already been made in recovery efforts. Millions of dollars have been raised, first responders have rescued thousands, and even the lights in downtown Houston are back on in most places. Many Houston residents will even be heading back to work today.
The flooding was worse than the last major storm to hit the Southeastern coast, Hurricane Ike, but the good news is the winds were not as strong as they were in the previous storm. This kept many power lines intact, even while flood waters still need to come down in several areas. So while yesterday’s headlines spoke of 30K citizens being displaced and no end to the turmoil in sight, it appears as if today a positive corner has been turned.
One note of caution, however, comes from a report by Black Knight Financial Services reported on CNBC this morning: that 75K mortgage holders may finds themselves unable to pay for the next two months, with 45K expected to be seriously delinquent. This increases the risk for mortgage defaults in the Houston region, which sees more homeowners ad more of these highly leveraged than we saw in New Orleans in the wake of Hurricane Katrina 12 years ago.