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Credit Insights

Macroeconomic Data Takes Center Stage

Despite the announced merger of two media firms, macroeconomic reports stole the show last week, although earnings releases continued to roll in with weakness in the healthcare sector. The highly anticipated nonfarm payroll report noted that the U.S. economy added 209,000 jobs last month, besting estimates of a 183,000 gain, and registered a 4.3% unemployment rate. Overall, 2017's average monthly growth of 184,000 jobs is on par with 2016's average monthly gain of 187,000. However, we consider employment figures—especially the unemployment rate—to be at best coincident indicators because they provide little indication of the future travel of economic activity. Two indicators that we think provide a better economic prognostication are the Institute of Supply Management's Purchasing Managers Index and monthly heavy-truck sales, both of which were reported this month.

July's PMI reading of 56.3 was down 1.5 points from June's but consistent with the year-to-date average reading of 56.4. There is a strong positive relationship with yearly changes in the rolling three-month average West Texas Intermediate price and the PMI. This relationship stems from the massive increase in U.S. oil and gas production and the subsequent growing energy exposure among diversified industrials. We think looking at the combination provides a better lens through which to analyze future developments. Although July's WTI oil prices posted their strongest monthly increase since April 2016, the rate of increase has decelerated since May. Moreover, the current $50 per barrel price is consistent with levels seen in the back half of 2016, suggesting that manufacturing growth may slow somewhat over the coming quarters.

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