In the holiday shortened week, June PMI data offered alternate views on economic growth in the second quarter. June jobs numbers also offered a contrasting picture on labor market conditions. The early reports on 2Q24 bank results will begin Friday.

S&P Global Final June PMI data (July 1 & 3) showed continued Manufacturing growth with accelerating Services sector growth. The S&P report noted, “US service sector companies reported an encouragingly solid end to the second quarter, with output rising at the fastest rate for over two years. Both new order inflows and hiring have also accelerated, the latter buoyed by firms taking on more workers in response to rising backlogs of work.” The report concluded, “with additional – albeit more muted – support coming from the manufacturing sector, the survey data point to GDP rising at an annualized 2.0% rate in the second quarter, with a 2.5% rate seen for June. Forward momentum is therefore gathering pace.”

So while above trend growth was indicated by the S&P Global PMI data, PMI data from the Institute of Supply Management offered very different findings. ISM Manufacturing PMI remained below 50 throughout the 2^nd quarter. Additionally the ISM Services PMI was below 50 in 2 months during the quarter. The ISM June Services PMI was the lowest reading since spring 2020.

Strangely the 2 PMI surveys seem to be measuring wholly unrelated activity since January 2022. The 2 Services surveys had a 0.80 correlation coefficient between the respective series from 2018 through 2021. However, the correlation coefficient since January 2022 is -0.04 which is statistically random.

The June Employment Situation report (July 5) similarly offered contrasting results between the Household and Establishment surveys. Headline June gains of 206k net new jobs obscure details of -110k in prior months negative revisions and Household survey data which found only 116k jobs added in June and just 195k jobs added over the past year. Since January 2022 the correlation coefficient between the 2 surveys is just 0.14 which is essentially statistically random. The Establishment Survey shows nearly 5 million more jobs added since December 2020 compared with the Household survey which also showed the Unemployment rate increasing to 4.1%, the highest rate since 2021.

Finally as I prepare for 2Q bank earnings, I reviewed industry H.8 data for the quarter. Loans grew almost 1% in the quarter led by Consumer and C&I. Credit Card balances increased more than 2% after the seasonal drop in 1Q. Auto loan balances dropped for the 7^th consecutive quarter. Commercial Real Estate balances were nearly unchanged from March which was the smallest increase since 1Q23. Construction loans were lower for a 2^nd consecutive quarter. Home equity line balances increased 1.11% the largest increase since 4Q22. While loans increased, total deposits fell slightly more than -1%. Reliance upon large time deposits for funding increased. Deposit trends were modestly better at small banks with total deposits dropping just -0.12%. However, there was greater percentage growth in large time deposits with large time deposits now 13.5% of total deposits increasing from 13.0% q/q.