KEY DATA: ISM (NonMan.): -3.5 points; Orders: -5.4 points; Employment: -2.2 points/ Layoffs: 28,307; Claims: -5,000

IN A NUTSHELL: “Growth is still decent, but it is hard to see how it could be accelerating given the moderation in both manufacturing and nonmanufacturing activity.”

WHAT IT MEANS: If you believe the equity markets, the economy is on a role. Well, it is expanding, but if you the people at the forefront of businesses, the supply managers, see conditions may be softening a touch. Tuesday, the Institute for Supply Management’s manufacturing index posted a decline across most components and today’s non-manufacturing survey was off broadly as well. Let’s be clear, the levels are still fairly high, but they are not in the strong growth atmosphere anymore. Activity decelerated sharply led by a major easing in new order growth. While order books continue to fill, they are doing so more slowly. And hiring has eased. On the other hand, input prices are rising faster and for more products. That was true for manufacturers as well. Maybe the Fed’s hoped for higher inflation could be coming soon.

Firms are holding on to their workers as if it means their survival, which given the labor shortages, that just might be the case. Challenger, Gray and Christmas report that layoffs were extremely low in July. Actually, only three times n the past ten years has the level been below 30,000, which was the case last month. So far this year, layoff announcements are off nearly 30%. Of course, the energy sector is expanding not imploding and that portion of the economy accounted for over 80% of the drop. The layoffs being announced are not due to the economy. “Demand downturn” accounted for only about 4% of the layoff explanations.

Jobless claims eased last week. The level has been in range that continues to point to tight labor markets, something firms know all too well.

MARKETS AND FED POLICY IMPLICATIONS: Tomorrow is the all-important, at least for tomorrow, employment report, so today’s data should not move markets a whole lot. But the supply managers’ numbers and the layoff data point to different things for the report. Both the manufacturing and nonmanufacturing employment indices moderated, implying job gains should slow. And given the outsized hiring in June, that would hardly be a surprise. Monthly payroll increases averaged over 190,000 in the second quarter but the moderate economic growth rate and the lack of workers implies that pace is just not sustainable. The consensus is for 180,000 and I think that is way too high. If there is a risk, I think it is that the number will disappoint. As for the unemployment rate, the rate was 4.36% in June, which was rounded up to 4.4%. It is not hard to get back to 4.3%. As for the markets, do investors really care about economic fundamentals? First there was the Trump Bump. Then when it finally became clear that tax cuts and infrastructure spending were not going to improve growth this year, the explanation turned to earnings, or Europe or whatever was the reason du jour. So it is hard for an economist to have any idea how the markets will react on a given day. But there is one thing that really should be watched: The wage data. It has been way too low for way too long. Without any solid wage increases, this economy cannot accelerate. Rising wages would also give the Fed the green light to raise rates further as well as shrink its balance sheet. It would take more than one month of faster wage gains, though, to provide that cover.