With modest GDP growth and a 1.4 trillion deficit downside to equities can only come from an external shock.
High unemployment keeps the Fed on hold and the 0 rate policy keeps costs of production down and keeps personal income gains modest.
At least for now, the combo of 0 rates and an 8%+ budget deficit continues to be supportive of only modest aggregate demand growth and only very modest employment growth.
Again, good for stocks, where a bit of top line growth and productivity gains keep earnings growth positive.
Karim writes:
- Strong service sector report with particular strength in key components (orders and employment)
- Employment index crosses 50 and at highest since 2008
- Service sector picking up growth mantle from manufacturing
- ADP gain plus upward revision to prior month suggest about 125-150k in private sector job growth
| July | June | |
| Composite | 54.3 | 53.8 |
| Activity | 57.4 | 58.1 |
| Prices Paid | 52.7 | 53.8 |
| New Orders | 56.7 | 54.4 |
| Employment | 50.9 | 49.7 |
| Export orders | 52.0 | 48.0 |
| Imports | 48.0 | 48.0 |