Economic wrap: big day ahead in the US shift - Westpac

Analysts at Westpac offered a economic wrap.

Key Quotes:

"US unit labour costs rose by 4.3% in Q2 (vs 2.1% expected) after an upward revision. A 0.6% fall in productivity drove some of that but the bigger story that is getting airplay is higher hourly compensation, which rose a chunky +3.7% annualised in the quarter. That's the fastest pace in a year, but it follows a 0.9% fall in Q1. Indeed, the four quarter average actually slowed in the year to Q2, to 2.2% from 2.5%.Initial jobless claims were stable at 263k (vs 265k expected) in the latest reporting week. Construction spending was flat in July (vs +0.5% expected), the detail showing weakness in residential and public construction. ISM manufacturing fell from 52.6 to 49.4 (vs 52.0 expected) – a seven-month low, leaving it at a level which has previously been consistent with annual GDP growth of around 1%. New orders were notably weak at 49.1 - a 7.8pt fall in the month - taking it back to the lows of late last year. Employment also edged down, -1.1pt to 48.3, as did prices paid, at 49.4 vs consensus at 52.

Economic Event Risks Today

US non-farm payrolls will be followed by markets even more intensely than usual given recent Fed comments elevating its importance in the near term policy mix. August is typically a softer month. Strong gains in recent months also point to moderation this time around. We look for a 170k gain, the market consensus at 180k. Employment gains are likely to see the unemployment rate edge back down to 4.8%. As is always the case, that depends on participation.

Of speciality interest, FOMC member Lacker will speak on interest rate benchmarks."