Week in a nutshell: US momentum slowing - Nomura

Analysts at Nomura explained  that we got further confirmation this week that economic momentum slowed in August. 

Key Quotes:

"The ISM nonmanufacturing index fell below market expectations, declining over 4 points to 51.4 from 55.5 (Nomura: 54.5, Consensus: 55.0). The details of the report were not much better. The business activity index dropped sharply to 51.8 from 59.3 and the new orders index declined close to 9 points, to 51.4 from 60.3. The inventory sentiment index remained elevated, meaning that respondents thought their customers' inventories were too high, which could hurt production in the near term. The weak report from the nonmanufacturing sector comes just a week after the Institute for Supply Management reported that manufacturing activity similarly slowed in August."

"Also, the commentary from the Beige Book prepared for the September meeting showed little pickup in activity during the reporting period of mid-July through the end of August. Altogether, the data suggest that economic momentum slowed notably in August. The deceleration in economic activity can be clearly seen in our US monthly momentum indicator, which shows that economic activity likely expanded by only 0.8% after growing above 2% in the prior two months. Given the slowdown in the data, we do not think there is a compelling reason for the FOMC to take action in September to raise interest rates."

"There is still some key data to be reported for August, such as retail sales, industrial production and CPI before the next FOMC meeting. But we and consensus expect the data to be generally on the weak side (See Data Preview section). We think that the recent slowdown is likely to be temporary and the economy should grow by around 2% in the second half of the year. Currently, our GDP tracking estimates suggest that GDP grew 1.2% in Q2 but reaccelerated to 2.4% in Q3. (This week’s Quarterly Services Survey for Q2 and wholesale inventory data raised Q2 GDP tracking by 0.2pp but lowered Q3 by 0.1pp). But it will take some time before the data can fully confirm this. As such, we think that the most likely timing of the next interest rate increase is December."