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Posts Tagged ‘Employment Situation’

Jobless Claims Hit a Roadblock

February 25th, 2010 Michael McDonough Comments off

What had been an improving trend in initial jobless claims has hit a roadblock with claims rising this morning to by 22K to 496K .  Recent volatility can be attributed to everything from weather to a backlog of claims in California, but in the end still points to further deterioration for the monthly employment report.  Typically, initial claims would need to fall to a level below the 400K to in order to support gains in non-farm payrolls.  Prior to December most believed this would be a reality in the near-future, but with claims now struggling to move below 450K the market will have to wait.

Unfortunately, the same bad weather that impacted claims in February will likely have a similar impact on the month’s payroll data.  In January payrolls declined by -20K, and I expect this decline will be even greater in February.  I expect the market will need to wait yet another month before receiving data supporting a nascent recovery for the labor sector.

Initial Claims vs. Unemployment Rate

Source: Bloomberg

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A Mixed Payroll Picture

February 5th, 2010 Michael McDonough Comments off

January’s non-farm payrolls fell by -20K, compared to a Bloomberg consensus forecast of an increase of +15K. December’s release was revised down to -150K from -85K, while November’s number was revised up to +64K from its original release of +4K. January’s unemployment rate unexpectedly fell to 9.7%, from 10.0%–driven by a shrinking workforce.  Keep in mind that once the labor market begins to improve many of these discouraged workers will begin to move back into the labor force, having the opposite effect on the unemployment rate.

Looking at the details; manufacturing payrolls rose in January 11K, after 25 months of declines, this echoes improvements in the ISM, which I believe could come under some pressure during the first half of this year (for more on this please see my piece being published later today).  The service sector added 40K jobs.  The construction sector lost an additional 75K jobs, likely due to cold weather, which likely also show up in the month’s construction activity indices and housing starts.

Government jobs declined -8K, mostly due to losses on the state and local front, which was offset by a 33K increase on the federal front–a portion of which are temporary census workers.  There was some good news on the temporary job front–generally accepted as a good forward looking indicator–, which rose 52K during the month.

Finally, a longer average workweek (33.3 hours from 33.2) may indicate companies are moving some part-time employees back to full time, which could be an eventual prelude to hiring.  At the same time, average hourly earnings rose 0.3%  during the month.  Combined this should help bolster personal income during the month by around 0.5%.

I do not believe this report will have any major impact on the FOMC’s next meeting scheduled for March 16th.  While unemployment improved the Fed is still fully aware of the amount of slack in the system, and the relatively tepid growth outlook for the U.S. in 2010.

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Payrolls Fall Hard in December, But Revised to Positive in November

January 8th, 2010 Michael McDonough Comments off

December non-farm payrolls fell 85k, compared to a consensus call of no change. November payrolls were revised to +4k from -11k this was the first increase in payrolls since December 2007.  December’s unemployment rate remained at 10.0%, in-line with consensus.  Hourly earnings in December rose +0.2%, in-line with consensus.

Manufacturing  payrolls declined -27k, falling for the twenty-fifth consecutive month, but this was actually slightly better than consensus, which anticipated a -35k drop in manufacturing jobs.   Temp employment continues to rise, which typically is a good forward looking indicator toward employment. Also, I should note, roughly -25K to -30K of the -53K jobs lost in construction could have been due to adverse weather during December.

The bottom line is accommodative monetary policy is here to stay (at least over the next several months), and the employment situation will continue to be a headwind for housing and consumer spending–hence growth.  I still anticipate that payrolls will not bottom until 2Q09, after which it will experience a very gradual recovery.

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US Economics Week Ahead: 2010 Starts with a Bang

December 31st, 2009 Michael McDonough Comments off

It is a good thing investors will have the entire weekend to recover from their New Year’s celebrations, because 2010 is starting with a bang, at least in terms of economic data.  Undoubtedly, the week’s most critical release will be Friday’s employment report, where excitement is building that payrolls could show their first monthly advance since gaining 120K jobs in December 2007. What a difference a year makes, considering it was announced last year that payrolls fell -524K December.  Leading up to this release data-centric investors will analyzing both the ISM manufacturing and non-manufacturing’s employment indices along with the ADP employment report for clues toward Friday’s release.

Other significant indicators this week include manufacturing ISM on Monday, pending home sales on Tuesday, non-manufacturing ISM and FOMC minute on Wednesday, and jobless claims and chain store sales on Thursday.  The manufacturing ISM should remain above 50 for the fifth consecutive month; however, weakness in some of the Fed’s regional manufacturing survey could place some negative pressure on the index leading to only a marginal gain from November’s release.  The FOMC minutes should prove to be a non-market moving event simply providing further details behind the Fed’s eventual exit strategy and the termination of its unprecedented accommodative policies.  Pending home sales should help provide some insight behind the health of home sales after the would-be expiration of the first time home buyer tax credit on November 30th.  Finally, chain store sales on Thursday will provide one of the first detailed looks at the holiday shopping season.

Fed speakers will be relatively active next week with Chairman Bernanke, Vice Chairman Kohn, and Atlanta Fed President Lockhart opening the week up on Sunday participating in a panel discussion for the American Economic Association in Atlanta.  On the earnings front, Bed Bath & Beyond (BBBY), Constellation Brands (STZ), Family Dollar Stores (FDO), and Monsanto (MON) are all expected to report this week.  Also, look for headlines from the 2010 Consumer Electronics Show that starts next week and could attract over 100K visitors.

Here is the rest of this week’s US calendar:

Monday, Jan. 4

10:00 a.m. EST: December’s ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): The Manufacturing ISM Index should remain above 50 for the fifth consecutive month, but experience only a marginal gain from November’s reading of 53.6.  Weakness in some of the Fed’s regional surveys could place downward pressure on this month’s release; however, some of this pressure should be alleviated by the fact that in November the ISM New Orders index came in at a relatively robust 60.3.  It will be important to continue monitoring the ISM’s new orders, employment, and prices paid index for implications toward the future and other sectors of the economy.  The current Bloomberg consensus forecast is for an ISM reading in December of 54.8, compared to 53.6 in November.

10:00 a.m. EST: November’s Construction Spending (Risk: Neutral, Market Reaction: Moderate): Construction spending will likely remain weak in November, and downward revisions to past data are likely to continue.  Construction spending was unchanged in October, but after revisions declined by -1.6% in September.  The current Bloomberg consensus forecast is for a decline in construction spending of -0.5%.

10:15 a.m. EST: Dennis Lockhart, the Atlanta Federal Reserve Bank President, will give a speech on government crisis response to the American Economic Association.

Tuesday, Jan. 5

December’s Motor Vehicle Sales (Risk: Neutral, Market Reaction: Moderate): Attractive dealer year-end incentives during December will likely help boost motor vehicle sales during the month.  The current Bloomberg consensus forecast for domestic vehicle sales is an annual pace of 8.4 million units, compared to 8.2 million a month prior.

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, 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 rose +0.4% compared to an increment of +0.6% a week prior.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales rose 1.9% last week on a yearly basis.

10:00 a.m. EST: November’s Factory Orders (Risk: Neutral, Market Reaction: Marginal): After rising 0.6% in October, factory orders should continue to rise in November on the back of relatively strong durable goods orders and refinery orders stemming from higher energy prices.  The current Bloomberg consensus forecast is for a rise in factory orders of 0.4%.

10:00 a.m. EST: November’s Pending Home Sales (Risk: Downside, Market Reaction: Significant): This release should help quantify the impact of what would have been the expiration of the first time homebuyer tax credit on November 30th.  It is expected that a wave of buyers rushed to close their purchases before the end of the month to qualify for the first time home buyer tax credit.  Mortgage applications have recently been on the decline to supporting this theory.  It is expected that an extension/expansion of the program will eventually bring a new group of home purchasers into the market.

Wednesday, Jan. 6

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): The MBA was closed last week so this week’s release will include two weeks of data. This index, which tracks new mortgage applications tend to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications fell 10.7% two weeks ago after rising 0.3% a week prior.  Refinance applications fell 10.1%, while purchase applications dropped -11.6%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

7:30 a.m. EST: December’s Challenger Job Cut Report (Risk: Neutral, Market Reaction: Marginal): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs.  Meaning layoffs announced in November may not actually take place until December, or even take place slowly over an extended period of time.  I anticipate this report will show continued improvements as companies have mostly completed large scale layoffs.

8:15 a.m. EST: December’s ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP Employment report is considered a good window into Friday’s critical payroll number.  Any significant swings in this release combined with unexpected shifts in the manufacturing and non-manufacturing ISM employment indices could shift the consensus forecast for Friday’s employment release.

10:00 a.m. EST: December’s ISM Non-Manufacturing (Risk: Neutral, Market Reaction: Significant): After unexpectedly falling below 50 in November, investors will have the opportunity to decide whether this is the beginning of a new trend or a one off event.  Investors will also be paying close attention to the non-manufacturing ISM’s employment index, which could have some sway over the whisper number ahead of Friday’s employment report.  The current Bloomberg consensus forecast is for a reading of 50.4 compared to 48.7 a month prior.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a decline of -1.5 million barrels versus a drop of -4.9 million barrels a week prior.

2:00 p.m. EST: FOMC Minutes (Risk: Neutral, Market Reaction: Significant): The FOMC minutes should provide additional details behind the Fed’s eventual exit strategy and the termination of its unprecedented monetary easing.  However, I think it is still too early in the year to anticipate anything tremendously market moving from this report.

Thursday, Jan. 7

Chain Store Sales (Risk: Neutral, Market Reaction: Moderate): The market will be looking closely at this report as it is the first detailed report covering the holiday shopping season.  Early reports have indicated that the holiday shopping season may have been more robust than some had anticipated, but considering last year’s base this may not be as positive as it sounds.  Nevertheless, higher is better; I anticipate the strongest results will come from discount retailers as consumers grow increasingly budget conscious.

6:00 a.m. EST: Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): Given the added significance of this week’s employment report this typically overlooked employment index could garner some extra attention. This survey conducted by Monster Worldwide Inc. measures online job demand.  According to the company, “The trend in online job availability has been largely flat for most of the year and remained so in November,” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide. “While job losses have continued to ease, businesses remain cautious about adding to their payrolls in light of sustained economic uncertainty.”

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 22K last week to 432K, after falling 28K a week prior.  It is important to note that the Christmas holiday, and the seasonal adjustment around it, could be skewing last week’s data.  The four week moving average improved to 460,250 from 465,250.  Improving initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, the job situation will still get worse before it gets better.

10:30 a.m. EST: 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.

1:00 p.m. EST: Tom Hoenig, the Kansas City Federal Reserve Bank President, will give a speech on the economic outlook.

4:30 p.m. EST: Fed Balance Sheet & Money Supply—Current Week’s Release (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.  The Fed’s balance sheet shrank marginally last week to US$2.219trn from US$2.221trn, due to marginal reduction in the Fed’s agency MBS.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Jan. 8

8:30 a.m. EST: December’s Employment Situation (Risk: Neutral, Market Reaction: Very Significant): The current Bloomberg consensus is for a change in payrolls of 0, versus a decline of -11K in November.  Individual forecasts range from -50K to +40K.  A steady reduction in the number of initial unemployment claims bodes well for improving payroll data, but I think we could see an eventual reversal of seasonal hires as the holiday shopping season comes to a close in the months ahead.  I will be paying close attention to the index’s temporary employment index, which recently has been improving, and is a good forward looking indicator toward payrolls.  I continue to believe, despite a potentially positive reading in December, the employment situation will get worse before it stabilizes and begins to improve, albeit gradually, in 2Q10.  The current Bloomberg consensus forecast for the unemployment rate is 10.0%, unchanged from November.

10:00 a.m. EST: Wholesale Trade (Risk: Neutral, Market Reaction: Marginal): This indicator measure the level of inventories and sales by US wholesalers.  It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales.  It is important to note that this data is on a two month lag.

1:35 p.m. EST: Jeffrey Lacker, the Richmond Federal Reserve Bank President, will speak at the Maryland Bankers Association “First Friday” Economic Outlook Forum.

3:00 p.m. EST: November’s Consumer Credit (Risk: Neutral, Market Reaction: Moderate): I anticipate that little has changed in this sector, and we should continue to see a decline in consumer credit in the face of consumers less willing to borrow and banks less willing to lend.  November would be the tenth consecutive month consumer credit has declined.  In October consumer credit declined by -$3.5 billion, after declining by a revised -$8.9 billion in September.  The current Bloomberg consensus forecast is for a decline of consumer credit outstanding of -$5.0 billion for November.

Enjoy the weekend!

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US Economics Week Ahead: Jobs to the Rescue?

November 28th, 2009 Michael McDonough Comments off

This week investors face a barrage of data in addition to Chairman Bernanke’s Senate confirmation hearing.  On the economic front, Friday’s employment report should steal the show followed closely Tuesday’s manufacturing ISM release. Both the manufacturing and non-manufacturing ISM reports have indicated expansion over the past three months, and should again in November, albeit at a potentially slower pace due to some weakness in the Fed districts’ manufacturing surveys during the month.

Leading up to Friday’s employment report investors will be paying close attention to the ADP and both the ISM and Non-ISM employment indices, which have the potential to sway the current market consensus forecast of a -100K decline in payrolls. Other notable indicators this week include Monday’s Chicago PMI; Tuesday’s motor vehicle sales, construction spending, and pending home sales; Wednesday’s Beige Book; Thursday’s jobless claims and non-manufacturing ISM release; and finally Friday’s factory orders.

Other potential headline drivers this week include Fed talk from Charles Plosser and Jeffrey Lacker, the start of the Senate’s debate on healthcare, President Obama’s job’s forum, and Treasury Secretary Timothy Geithner’s testimony before the Senate Agriculture Committee Wednesday.

Here is the rest of this week’s US calendar:

Monday, Nov. 30

*9:45 a.m. EST: November’s Chicago PMI (Risk: Neutral, Market Reaction: Moderate): The Chicago PMI measures business activity in the mid-West, and is released one business day prior to the ISM. *I should note that the Chicago PMI is released several minutes early to subscribers, so the market could react at 9:42 a.m. on the news.  This index is considered a forward looking indicator to the national ISM, so any large unexpected shifts in the Chicago PMI could impact trading.  The current Bloomberg consensus forecast is for a reading of 53.0, versus to 54.2 in October.  The PMI could experience some upward momentum stemming from a 15 point increase in the new orders index.  The PMI covers both the manufacturing and non-manufacturing sectors.

10:30 a.m. EST: November’s Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Moderate): This index is not highly publicized, and tracks manufacturing activity within the Dallas Feds jurisdiction.  Last month’s survey suggested, “Texas factory activity declined in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index—a key indicator of current manufacturing activity—edged further into negative territory, suggesting output in October contracted after remaining stable in September.”

3:00 p.m. EST: Farm Prices (Risk: Neutral, Market Reaction: Marginal): Given the relationship between farms prices and food prices, this index could have significant implications on future headline CPI.

Tuesday, Dec. 1

November’s Motor Vehicle Sales (Risk: Neutral, Market Reaction: Moderate): Motor vehicle sales will likely edge down slightly in November, which is historically a weak month for auto sales.  Auto sales climbed 17.2% in October.  The current Bloomberg consensus forecast is for auto sales of 7.75 million compared to 7.90 million in October.  However, it should be noted that if this forecast is realized, then auto sales would finish positive for the first time on an annual basis since November 2007.

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, 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 no change in store sales compared to a decline of -0.1% a week prior.

8:55 a.m. EST: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were rose 2.8% last week on a year over year basis.

10:00 a.m. EST: November’s ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): The ISM could face some downward pressure during the month after other manufacturing indices including the NY and Richmond Fed indices experienced declines in November.  It will also be important for investors to pay close attention to the forward looking new orders index, along with the employment index for clues towards Friday’s payroll release.  The current Bloomberg consensus forecast is for a reading of 55.0 versus 55.7, a month prior.  The forecast range is from 53.8 to 56.0.

10:00 a.m. EST: October’s Construction Spending (Risk: Neutral, Market Reaction: Marginal): Construction spending will likely decline modestly after rising 0.8% in September.  Construction spending was revised down in August from +0.8% to -0.1% after experiencing a surprise gain in September.  The current Bloomberg consensus forecast   is for a decline in spending of -0.4%.

10:00 a.m. EST: October’s Pending Home Sales (Risk: Neutral, Market Reaction: Moderate): Pending home sales have been on a tear providing plenty of momentum for existing and new home sales.  Pending home sales rose 6.1% in September, which was the index’s 8th consecutive month of gains for the index—the longest streak in the index’s history.

12:20 p.m. EST:  Charles Plosser, the Philadelphia Federal Reserve Bank President, will discuss the economic outlook.

Wednesday, Dec. 2

7:00 a.m. EST: MBA Mortgage 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.  Applications fell 4.5% last week after dropping 2.5%% a week prior.  Refinance applications dropped 9.5%, while purchase applications rose 9.6%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

7:30 a.m. EST: Challenger Job Cut Report (Risk: Neutral, Market Reaction: Marginal): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs.  Meaning layoffs announced in November may not actually take place until December, or even take place slowly over an extended period of time.

8:15 a.m. EST: ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP Employment report is considered a good window into Friday’s critical payroll number.  Any significant swings in this release combined with unexpected shifts in the manufacturing and non-manufacturing ISM employment indices could shift the consensus forecast for Friday’s employment release.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed an increment of 1.0 million barrels versus a decline of -0.9 million barrels a week prior.

2:00 p.m. EST: Beige Book (Risk: Neutral, Market Reaction: Moderate): Anecdotal evidence toward growth in the Fed’s Beige Book has slowly been turning more positive, which has recently been demonstrated through other economic indicators.  This report is typically released two weeks prior to FOMC meetings.

Thursday, Dec. 3

Ben Bernanke, Federal Reserve Chairman, is scheduled to appear for a confirmation hearing for the Senate Banking Committee.

President Obama will be holding a conference with leaders from the business, labor, finance and the nonprofit sectors.

Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): This survey conducted by Monster Worldwide Inc. measures online job demand.  According to the company, “The rise in the October Index, along with an improvement in the annual rate, indicate a mild expansion in the underlying employer demand for workers” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide. “While the decline in consumer confidence has likely contributed to reduced job demand in the retail and hospitality sectors, employers are actively recruiting in the healthcare and public sectors, resulting in stability of the overall Index.”

November’s Chain Store Sales (Risk: Neutral, Market Reaction: Moderate): US chain store sales should remain relatively flat to up modestly during the month on the back of mixed retail results.  Relatively strong performance in the ICSC-Goldman Sachs weekly chain store sales index should bode well for retailers, but numerous headwinds still exist, including a weak labor market and wavering consumer confidence reducing spending.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 35K last week to 466K, after showing no change a week prior. This is the lowest level reading since September 2008. But, a portion of this improvement was due to a strong seasonal adjustment factors due to annual deviations in the date of the Thanksgiving holiday—this could add some volatility to the index next week.  Nevertheless, claims continue to trend down and are indicative of fewer job losses in the monthly employment report, however, the job situation will still continue to get worse before it gets better.  The current Bloomberg consensus forecast is expecting claims to come in at 485K, an increase of 19K form last week.

8:30 a.m. EST: Final Third Quarter Productivity and Costs (Risk: Neutral, Market Reaction: Moderate): The recent revision of third quarter GDP to 2.8% from 3.5%, will likely lead to a minor downward revision to last quarter’s stellar productivity number.  The Bloomberg consensus forecast is expecting a revised quarterly increase in productivity of 8.6%, compared to the original release indicating a jump of 9.5%. But, strong gains in productivity could cause employers to delay hiring as they are now receiving more output from fewer workers.  The Bloomberg consensus forecast is also anticipating an upward revision to unit labor costs from -5.2% to -4.2%.

10:00 a.m. EST: November’s ISM Non-Manufacturing Index (Risk: Neutral, Market Reaction: Significant): The ISM non-manufacturing index should experience a modest rise during the month, realizing the third consecutive month of a reading over 50.  It will also be important to monitor the index’s employment component, which could impact Friday’s employment situation forecasts.  The current Bloomberg consensus forecast is for a reading of 52.0 compared to 50.6 in October. 

10:30 a.m. EST: 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.

4:30 p.m. EST: 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.  The Fed’s balance sheet shrank last week to US$2.189trn from US$2.192trn, after ballooning two weeks prior.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Dec. 4

8:30 a.m. EST: November’s Employment Situation Report (Risk: Neutral, Market Reaction: Very Significant): Continued second derivative improvements in the labor market should help slow the decline in payrolls after last month’s -190K drop.  The current Bloomberg consensus forecast for November’s payrolls is a decline of -100K, with the unemployment rate unchanged at 10.2%.  It will be important to monitor this week’s ADP, ISM employment index, and non-ISM employment index for unexpected swings that could impact the consensus forecast.

10:00 a.m. EST:  Charles Plosser, the Philadelphia Federal Reserve Bank President, will give opening remarks at conference on Policy Lessons from the Economic and Financial Crisis in Philadelphia.

10:00 a.m. EST: September’s Factory Orders (Risk: Neutral, Market Reaction: Moderate): A weak advanced durable goods release could place some downward pressure on factory orders. The current Bloomberg consensus forecast is for a modest increment of 0.2%, compared to a rise of 0.9% in September.

1:15 p.m. EST:  James Bullard, the St. Louis Federal Reserve Bank President, will speak at the Philly Fed’s conference.

Enjoy the weekend!

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Job’s Report Comes in Below Expectations, Unemployment to 26 Year High

October 2nd, 2009 Michael McDonough Comments off

In September non-farm payrolls declined 263k, versus a consensus forecast of -175k, and a revised decline in August of -201K.  Payrolls have now declined for 21 consecutive months.  Over the last 21 months 7.2mn people have lost their jobs.  September’s unemployment rate rose to 9.8% from 9.7%, this was inline with expectations, but the highest level since June 1983.  This data continues to indicate that there will be no quick fix for the labor market, and that consumers will continue to face significant challenges.  Most forward looking indicators toward employment, especially initial jobless claims, are still indicating further deterioration to the nation’s employment situation, despite second derivative improvements. Job losses will remain a reality into 2010, and in all likelihood the unemployment rate will top 10% before leveling off.  It is important to note that employment does tend to lag economic recoveries, however, it will be hard for any recovery to gain traction with an increasing number of consumers out of work and without and/or unwilling to use credit.

Looking behind the headline, a decline in the average work week and hours work will likely lead to stagnant performance for September’s income.  A worsening employment situation will assuredly keep the FOMC’s punch bowl in place while other parts of the economy show modest gains.

Private Sector -198,000
o Natural Resources & Mining -1,000
o Construction -64,000
o Manufacturing -51,000
–Durable goods -43,000
–Non-durable goods -8,000
o Services -147,000
–Wholesale Trade -4,900
–Retail Trade -38,500
–Transportation & Warehousing -15,400
–Utilities -700
–Information & Media 0
–Financial Svcs & Real Estate -10,000
–Professional & Business Svcs -8,000
–Education -16,900
–Health Svcs 20,500
–Leisure -9,000
Government -53,000
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US Economics Week Ahead: Markets Try to Find Traction in an Array of Data

September 25th, 2009 Michael McDonough 1 comment

There’s no doubt this week’s most important release will be Friday’s employment report, which is expected to show a decline in payrolls of -170K with an unemployment rate of 9.8%.  This week could prove critical as markets try to regain some traction after several negative surprises last week, including lower than anticipated existing home sales and durable goods orders.  However, looking at the docket this week (and possibly the months ahead) may hold slightly more downside risk than upside as the effects of the Cash for Clunkers program continues to fade, and the first time home buyer credit ticks closer to expiration come the end of November.  Other heavy hitters to watch this week include Tuesday’s consumer confidence report, Wednesday’s Chicago PMI release, and jobless claims, ISM, and personal income and outlays on Thursday.

Ending on a more positive note, the US is expected to return to positive GDP growth starting in 3Q09 on the back of improvements in the inventory cycle stemming from a slower rate of destocking.  However, the magnitude and longevity of this return to growth will be strongly dependent on consumer demand returning to the market.

Here is the rest of this week’s US calendar:

Monday September 28th:

8:30AM: Chicago Fed National Activity Index for July (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has shown improvements over the preceding six months and is expected to improve again in August from its reading of -1.7 in July.

10:30AM: Dallas Fed, Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Marginal): This index is not highly publicized, and tracks manufacturing activity within the Dallas Feds jurisdiction.  Last month’s survey suggested “that factory activity continued to contract at a slower pace in August.”

Tuesday September 29th:

7:45AM: ICSC-Goldman Store Sales (Risk: Negative, 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 weekly decline of -2.0% in store sales compared to an increase of +0.0% a week prior.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were down -2.6% last week on a year over year basis.

9:00AM: S&P Case-Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): The Case Shiller HPI has shown some signs of life rising 1.4% in June with only Las Vegas and Detroit experiencing monthly declines.  But, on a year over year basis both the Case-Shiller 10 and 20 city composite indices are still down over 15%.  Nevertheless, the index will likely show a modest monthly improvement in July on the back of relatively strong housing activity.

9:50AM: Richard Fisher, Dallas Federal Reserve Bank President, gives a speech on the state of the economy.

10:00AM: Consumer Confidence (Risk: Negative, Market Reaction: Significant): Recent advances in other consumer confidence indicators, including Reuters/UMich Consumer Sentiment Index, should help add some upward momentum to the Conference Board’s September Consumer Confidence number.   A weak labor market is still a big concern for consumers, however, indications that the economy may be improving will likely not go unnoticed.  The current Bloomberg consensus forecast is for an increase to 57.0 from August’s number of 54.1.

10:00AM: State Street Investor Confidence Index (Risk: Neutral, Market Reaction: Marginal): The State Street Investor’s Confidence Index measures investors’ tolerance to risk.  According to the State Street report, “[August’s] increase represents the eighth consecutive improvement in Global Investor Confidence, and places the risk appetite of institutional investors firmly in the range that is associated with accumulation of risk exposures,” They went on to say. “At the same time, the rate of increase in the Index has moderated relative to some months ago, suggesting that institutions are being somewhat selective in their allocations.”

3:00PM: Farm Prices (Risk: Neutral, Market Reaction: Marginal): Given the relationship between farms prices and food prices, this index could have significant implications on future headline CPI.

7:00PM: Charles Plosser, Philadelphia Federal Reserve Bank President, is speaking on Fed’s role in the economy at the Lehigh Valley Economic Outlook

Wednesday September 30th:

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’s data showed an increment of 12.8% on higher refinancing activity stemming from mortgages rates slipping below 5%.  The refinance index rose 17.4%, while the purchase index rising 5.6%.Refinances made up 63.8% of all applications last week.

8:15AM: ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP Employment report is considered a good window into Friday’s critical payroll number.  Last month, however, the ADP reported indicated job losses of -298K, while payrolls declined by only -216K.

8:30AM: GDP (Risk: Neutral, Market Reaction: Moderate): According to the Bloomberg consensus survey, the BEA’s final estimate of 2Q09 GDP is likely to come in at -1.2%, compared to the preliminary estimate of -1.0%.  The culprits behind the anticipated slippage are faster inventory liquidation and weaker net exports. GDP is widely expected to turn positive in 3Q09.

9:45AM: Chicago PMI (Risk: Negative, Market Reaction: Moderate): This Chicago PMI measures business activity in the mid-West, and is released one day prior to the national ISM index.  Adverse effects from strong seasonal adjustment factors could cause this index to surprise on the downside.  The current Bloomberg consensus forecast is for an increase to 52.0 in September versus 50.0 in August.  It will be important to pay close attention to any significant changes to the new orders, employment, and prices paid indices. The new orders index broke above 50 in August for the first time in 11 months.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a rise of 2.8mn barrels versus a decline of -4.7mn barrels a week prior.

Thursday October 1st:

Motor Vehicle Sales (Risk: Negative, Market Reaction: Moderate): Auto sales will likely face a sharp pullback in September, no longer benefitting from the US government’s Cash for Clunkers program.  The current Bloomberg consensus is forecasting 8.0mn domestic sales for September, versus a 10.1mn annual pace in August.  Despite the precipitous drop, the y/y decline should be less now than it was prior to the Cash for Clunkers program, which is somewhat positive.

Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): This survey conducted by Monster Worldwide Inc. measures online job demand.

7:30AM: Challenger Job-Cut Report (Risk: Neutral, Market Reaction: Moderate): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs.  Meaning layoffs could be announced in September, but not take place until October, or may even take place slowly over an extended period of time.

8:30AM: Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant): The temporaneous effects of the Cash for Clunkers program have likely lead to a significant increment in consumer spending for August, with the Bloomberg consensus forecast anticipating a 1.1% monthly increase, higher energy prices may have also had a marginal impact.  Personal income will likely turn slightly positive for the month on the back of higher average wages; the current Bloomberg consensus forecast is for a monthly increment of 0.1% versus no change last month.  The core PCE is expected to rise 0.1%.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 21K to 530K. Initial claims should continue to demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 480K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.  The current Bloomberg consensus for this week’s initial claims release is 537K. The anticipated increment for claims may still be due to seasonal adjustment effects stemming from the later than usual Labor Day Holiday.

10:00AM: ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): In August the ISM rose for the 8th consecutive month finishing August at 52.9, this was the index’s first reading above the breakeven point of 50 since January 2008.  Looking to September, the current Bloomberg consensus forecast is for a reading of 53.5, which I personally believe may be slightly optimistic.  Nevertheless, the new orders index did jump last month to 64.9 from 55.3.  With that in mind it will be very important to pay close attention to September’s new orders and employment index, which could help set the tone for the overall report.

10:00AM: Construction Spending (Risk: Negative, Market Reaction: Moderate): According to the Bloomberg consensus survey construction spending is expected to fall -0.1% in August versus a decline of -0.2% in July.  Non-residential construction should continue placing the strongest downward pressure on the overall index, while residential construction spending also has the potential to move into negative territory after gaining 2.3% in July and 0.4% in June on a strengthening housing market.

10:00AM: Pending Home Sales (Risk: Neutral, Market Reaction: Moderate): Pending home sales rose 3.2% in June, realizing its sixth consecutive monthly gain.  However, pending home sales could start facing some pressure over the coming months as the first time home buyer tax credit is presently set to expire on November 30th.

10:30AM: 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.  The Fed’s balance sheet rose again last week to US$2.141trn from US$2.125trn a week prior.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

5:30PM: Sandra Pianalto, Cleveland Federal Reserve Bank President, is speaking at a Market News international seminar in NY.

Friday October 2nd:

8:30AM: Employment Situation Report (Risk: Neutral, Market Reaction: Very Significant): The current Bloomberg consensus forecast is for a decline in payrolls of -170K for September, compared to a decline of -216K in August.  However, it is important to keep in mind that a later than usual Labor Day could lead to some discrepancies in this month’s data.  Nevertheless, we should see an improvement from last month’s declines.  According to the Bloomberg consensus forecast the unemployment rate is expected to rise to 9.8% from 9.7%.

10:00AM: Factory Orders (Risk: Negative, Market Reaction: Moderate): The current Bloomberg consensus forecast is for an increment in factory orders of 1.0% in August, versus +1.3% in July.  However, unexpected weakness in last week’s durable goods release on Friday may cause some revisions to this number.

Enjoy the weekend!

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US Week Ahead: Jobs & Manufacturing

August 1st, 2009 Michael McDonough Comments off

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!

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US Week Ahead: It’s all about the jobs!

June 26th, 2009 Michael McDonough Comments off
Despite the shortened work week, we have a rather busy schedule of US economic data releases, climaxing with Thursday’s US employment data. Last month’s payroll data caught the market by surprise coming in well above expectations, demonstrating the lowest level of job losses since September 2008. But, the big question remains, was this start of a trend or a one-off anomaly. Other economic news in May sent mixed signals, fueling growing uncertainties, which led to a US treasury rally. What this means is that in many investors’ minds this month’s payroll data may hold the answer to that important question. Therefore we should expect a signifcant jump in trading volumes on the back of any surprises to that report, with an almost certain equity rally and US rates sell-off on better-than-expected data. However, the opposite is also true. Here is the rest of this week’s economic calendar:


Monday June 29th:

8:30AM: Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index of 85 separate data sets designed to represent national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index the three month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading.


Tuesday June 30th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downside, Market Reaction: Moderate): This weekly index tracks same store sales at major US retailers, and accounts for roughly 10% of national retail sales. Given recent data supporting an increase to the US saving rates, this index could face some downward pressure as people save more and spend less.

9:00AM: S&P Case-Shiller HPI (Risk: Neutral, Market Reaction: Marginal/Moderate): Despite, the significance of US home price data, this index holds a two month lag, meaning this June’s data would actually be from April. This lag marginally reduces the index’s importance compared to some of the other more timely housing market indicators. Nevertheless, large movements in this index could imply further deterioration or recovery of the US housing market, which could impact trading.

9:45AM: Chicago PMI- Business Barometer Index (Risk: Downside, Market Reaction: Marginal/Moderate): The Chicago PMI measures business conditions in the Chicago area; anything below 50 indicates a contraction while a reading above that level implies an expansion. According to Bloomberg, the market is currently forecasting a reading of 44.5. However, given recent weakness in the auto and manufacturing sectors I expect this number could disappoint. It will be important to pay close attention to the new order and prices paid sub-components. The new oders component tends to be forward looking, while the prices paid component experienced a 60 year low of 28.4 in April.

10:00AM: Consumer Confidence (Risk: Upside, Market Reaction: Moderate):
The confidence index, which measures consumers’ attitudes towards present and future economic expectations can be a good barometer for consumer spending. This index has recently experienced significant gains as consumers’ seem to be focusing on positive economic releases. The current conditions index has remained somewhat stagnant, while the future expectations index experienced an increase of over 20 points last month. However, some deterioration in recent employment data could put some downward pressure on this month’s release, but I still believe this index is more likely to surprise to the upside.


Wednesday July 1st:

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.

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

10:00AM: ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): The ISM measures national manufacturing conditions, a reading of over 50 signifies expansion while under a retraction. The current consensus on Bloomberg is 45. It will be very important to look at the new orders component of the ISM, which tends to be a forward looking indicator for the overall index. New orders finished over 50 last month, for the first time in 17 months, but will likely move back below 50 this month.

10:00AM: Construction Spending
(Risk: Upside, Market Reaction: Marginal): This index tracks the value of new construction activity on residential, non-residential, and public projects. Recent stimulus spending should help drive up the public projects component of the index, and we will likely see a marginal increase in residential spending.

10:00AM: Pending Home Sales (Risk: Neutral, Market Reaction: Moderate): A strong number in this index would help support the case of a recovery in the US housing market, which could have a moderate impact on trading. However, it is important to note that not all pending home sales turn into actual sales, but it is a good indicator of sentiment.

June Motor Vehicle Sales (Risk: Downside, Market Reaction: Moderate): Increasing savings rate, tight credit conditions, and a weak job market will likely cause car owners to extend the life of their current vehicles, despite incentive offers, reducing total car sales. This will also be exacerbated by what has recently been increasing gas prices. 7.4mn cars and light trucks were sold in May.


Thursday July 2nd:

8:30AM: Employment Situation Report (Risk: Neutral, Market Reaction: VERY Significant): According to Bloomberg, the current market consensus for the change in payrolls stands at -350,000 with an unemployment rate of 9.6%. The average decline in payrolls for the six months preceding April was 643,000 versus 345,000 in May. The market will likely interpret another positive surprise as the beginning of a recovery in the US employment situation, which would lead to a strong rally in equities and selloff for US treasuries; a negative surprise would have the opposite effect. Nevertheless, the unemployment rate will likely drift above 10% in the comings months.

8:30AM: Initial Claims (Risk: Downside, Market Reaction: Significant): This report will be overshadowed by the payroll data, released simultaneously, but is an excellent forward looking indicator for the employment sector. We could see an unexpected jump in claims as the school year ends and teachers who have lost their jobs due to budget cuts begin filing for claims.

10:00AM: Factory Orders (Risk: Upside, Market Reaction: Moderate): Given the recent increment in durable goods orders we could see factory orders surprise to the upside. According to Bloomberg the current consensus forecast for May is a month over month increase of 1.4%.

Friday July 3rd:

Enjoy the long weekend!


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