Skip to content

US Week Ahead: Jobs & Manufacturing

Written by

MikeMcD82

Following last week’s mixed data, the market will be searching for indications of the strength and timing of a US economic recovery — and there will be plenty of places to look.  In contrast to the relative quiet of the past several weeks, a slew of economic indicators pertaining to jobs and manufacturing should be stealing the spotlight away from earnings.  The coming week’s biggest highlights are likely to be Monday’s ISM manufacturing report and Friday’s ever important employment situation release.  Companies reporting earnings this week include Cisco, Proctor and Gamble, Kraft, MGM, News Corp, CBS, and Prudential.  After last week’s record US Treasury auctions, on Monday the Treasury Department will be releasing a quarterly update on its upcoming borrowing requirements; given the level of the US deficit and continued efforts to bolster the economy, the amount of future debt will probably be quite significant and could cause some reaction in the market.

I want to take a moment to remind everybody that while the number in the headline often garners the most attention, it’s the details that tell the true story.  There were a couple instances last week where a data release immediately shifted sentiment in one direction, but as the details behind the report were digested, said sentiment quickly took an about face.  This was especially true for what on the surface appeared to be a very negative durable goods release.  So let’s take this as a lesson, and be sure to pay close attention to the details behind this week’s data.

Monday August 3rd:

Motor Vehicle Sales (Risk: Positive, Market Reaction: Moderate): This release could face some upward pressure due to the effects of the US Government’s new “Cash for Clunkers Program”, which thus far appears to be a success.

10:00AM: ISM Manufacturing Index (Risk: Negative, Market Reaction: Significant): Despite an easing recession, the ISM could face some weakness on last month’s weak new orders index.  But, low inventory levels could help to offset a portion of this effect.  The current Bloomberg consensus for the ISM is 46.5, versus last month’s release of 44.8.  It will also be important to keep an eye on the details of the report, especially the employment, new orders, inventories, and prices paid indices.

10:00AM: Construction Spending (Risk: Negative, Market Reaction: Moderate): Gains in residential construction will likely be offset by declines in commercial construction on the back of lower corporate profits.  The current Bloomberg consensus for construction spending is a monthly change of -0.5%, compared to a previous reading of -0.9%.

Tuesday August 4th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a 1.0% gain in store sales over the previous week.

8:30AM: Personal Income and Outlays (Risk: Neutral, Market Reaction: Moderate): Given the timing of this release—right after the 2Q09 advanced GDP release—the report loses some of its significance.  Nevertheless, the report will likely show a moderate increase in the personal consumption expenditure for June, stemming from higher energy prices.  Personal income will likely exhibit significant declines on the back of Weakness in the labor market and a decline in government payments.  The current Bloomberg consensus forecast for the change in June’s personal income is -1.1%, compared to the previous month’s reading of 1.4%.  The forecast for the monthly change in June’s personal consumption expenditure is 0.3%, or unchanged from the previous month.

10:00AM: Pending Home Sales Index (Risk: Positive, Market Reaction: Moderate): A strong number in this index would continue to support the current rebound in the U.S. housing market, which could have a moderate impact on trading. Despite the fact that not all pending home sales turn into actual sales, this index is considered a good forward looking indicator toward housing activity.

Wednesday August 5th:

Chain Store Sales (Risk: Negative, Market Reaction: Moderate): Chain store sales probably came under pressure again last month, as consumers reduced spending on the back of weakness in the labor market.  In fact, a recent survey by the National Retail Federation found that families this year will be spending on average US$549 versus US$594 last year on back to school goods.  This along with other negative factors should adversely impact this summer’s retail sales.

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week the the overall index fell 6.3%; while the refinance index decreased by 10.9% on rising, but still relatively low mortgage rates.

8:15AM: ADP Employment Report (Risk: Neutral, Market Reaction: Moderate/Significant): The ADP employment report is typically considered a good indicator of the payroll data released later in the week, so a big swing in these data could shift expectations for the employment data released on Thursday and thus significantly affect trading.

10:00AM: Factory Orders (Risk: Neutral, Market Reaction: Significant): June’s decline in durable goods orders could place some downward pressure on this index, however, an increase in June’s nondurable component, stemming from increased petroleum orders could offset a portion of that decline.  The current Bloomberg consensus for June’s factory orders is -0.9% m/m, compared to a previous reading of 1.2%

10:00AM: ISM Non-Manufacturing Index (Risk: Upward, Market Reaction: Significant): July’s non-manufacturing ISM will likely remain relatively unchanged.  But, it will be important to focus on the prices paid index, which took a big jump last month, and the new orders index, which tends to be a forward-looking indicator for the primary business activity index.  The current Bloomberg consensus forecast for July’s non-manufacturing ISM is 48.2, compared to June’s reading an 47.0, and still below the breakeven point of 50.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector.  Last week this report showed an unexpected increase in crude oil inventories, which led to a drop in oil prices.  (Please see this brief discussion piece on FiatEconomics.com describing the potential effect of inventories on oil prices.)

Thursday August 6th:

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial Claims rose 25K to 584K, last week as the index continues to adjust for erroneous seasonal adjustment factors stemming from early auto plant closures.  The good news these effects by now likely been washed out, so we should once again be able to rely on claims as a being an accurate indicator of current conditions .  On that note, last week’s claim number was still far below the 4wk moving average–from before the incorrect seasonal adjustments– which in my view shows there has been some improvement in the initial claims data.  But, given the still elevated numbers it will continue to have an adverse effect on payroll data.  The current Bloomberg consensus for this week’s initial claims number is 575K.

10:00AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  Last week the Fed’s balance sheet moved back below US$2trn to US$1.985trn.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help bring down interest rates.

Friday August 7th:

8:30AM: Employment Situation (Risk: Neutral, Market Reaction: Very Significant): What translates into improvements for jobless claims data, should help reduce some of the downward pressure facing US payroll data.  Nevertheless, we will likely still see a considerable decline in US payrolls with the current Bloomberg consensus forecast indicating a decline of 300,000, compared to last month’s fall of 467,000 jobs.  The unemployment should also continue to rise with the current consensus forecast indicating a rate of 9.7%, compared to last month’s 9.5%.  It is high likely that we could see the unemployment rate edge above 10% before the end of the year.  The market will be paying very close attention to this release, so any major surprises could hold significant consequences in trading.

3:00PM: Consumer Credit (Risk: Neutral, Market Reaction: Moderate): Consumer credit probably continued to decline in June, as consumer’s paid off credit cards and reduced borrowing.  The current Bloomberg consensus is a monthly decline of US$4.2bn

Enjoy the weekend!

Previous article

2Q09 Advanced GDP Better Than Estimates on Government Expenditures

Next article

ISM & US Construction Index come in Above Expectations

Join the discussion

Leave a Reply

Your email address will not be published. Required fields are marked *