Key U.S. Data Releases and Events

As a result, labor markets overall still reflect recessionary conditions, and further downward pressure on employment and compensation is likely. This will be reflected at the end of the upcoming week in another relatively modest decline in payroll employment during October and a further uptick in the unemployment rate. It is no surprise that consumer confidence is backpedaling, and the outlook for consumer spending is poor.

While single family housing construction is seeing an upswing, multi-family homebuilding and commercial construction are skating furiously downwards—on net, we expect a decline in October construction spending. But ISM leading indicators are expected to claw a little higher in the month, and motor vehicle sales should get a pop from ramped-up incentives.

Despite grumpy consumers, auto producers and retailers will not give up, and that will translate into further discounts and incentives to keep factories burdened and inventories from moving up. Therefore, inflation is caged well below the Fed's target—with a huge output gap and the continued fragility of the financial system, we expect the FOMC to vote retain its aggressive stance on monetary policy on November 4.

KEY U.S. DATA RELEASES THIS WEEK

Monday, November 2 – Construction Spending (Sep.)

Construction Put in Place

• IHS Global Insight: -0.5%
• Consensus: -0.2%
• Last Actual: +0.8% (Aug.)

Construction Excl. Residential Improvements

• IHS Global Insight: -0.5%
• Last Actual: -0.1% (Aug.)

What to Look For

• Construction spending is expected to fall 0.5% in September.

Implications

Single-family housing will post another strong increase, but this will be offset by declines in multi-family and nonresidential construction. The outlook for the single-family home market is looking up, but that for multi-family housing and nonresidential construction is grim.

Monday, November 2 – ISM Manufacturing Index (Oct.)

• IHS Global Insight: 53.0
• Consensus: 53.0
• Last Actual: 52.6 (Sep.)

What to Look For

• The index probably inched up to 53.0 in October, from 52.6 in September, as the recovery struggled; but it managed to remain in positive territory.

Implications

The last month was mixed, with the Empire and Chicago surveys scoring gains, but the Richmond and Philadelphia readings losing ground. The early recovery is not going to be very strong in many manufacturing segments, with the auto sector carrying much of the load in the third quarter, but no clear route to build on those gains in the fourth quarter. However, the tech sector is picking up some momentum and solid export demand, especially in emerging markets, is also providing some tailwinds.

Tuesday, November 3 – Motor Vehicle Sales (Oct.)

• IHS Global Insight: 10.1 Mil.
• Consensus: 9.8 Mil.
• Last Actual: 9.2 Mil. (Sep.)

What to Look For

• Total sales to get a boost from ramped-up incentive programs.

Implications

Still woozy from September's cash-for-clunkers sales hangover, manufacturers moved to ease the pain in October, rolling out incentive programs that should help push sales to a seasonally adjusted annual rate of 10.1-million units. Recovering inventory levels should also support aggressive marketing programs and sales volume through the rest of fourth-quarter 2009.

Wednesday, November 4 – ISM Non-Manufacturing Index (Oct.)

• IHS Global Insight: 52.0
• Consensus: 51.6
• Last Actual: 50.9 (Sep.)

What to Look For

• The ISM index for non-manufacturing industries is expected to move up to 52.0 in October.

Implications

Freight activity picked up in recent weeks after a summer lull, but indicators of activity across regions are mixed and contradictory. Financial markets continue to be positive, although there is less upward momentum than we saw in September and loan loss pressures on banks remain high. Employment markets are showing only marginal improvements.

Wednesday, November 4 – FOMC Rate Decision

• IHS Global Insight: 0.00-0.25%
• Consensus: 0.00-0.25%
• Last Actual: 0.00-0.25%

What to Look For

• FOMC to vote to hold rates steady, and to keep quantitative easing targets and timetables unchanged.

Implications

The FOMC is expected to vote on November 4 to keep rates unchanged, and retain existing targets and timetables for quantitative easing measures. Core inflation is still running below the Fed's target, and the output gap remains huge. In addition, the stability of the banking system remains fragile, as loan loss reserves continue to rise, and regional banks are having difficulty absorbing mounting losses from commercial real estate—the contagion risk remains high. All these elements argue for no change to the current accommodative stance on policy.

Thursday, November 5 – Productivity (Preliminary, Q3)

Nonfarm Business Productivity

• IHS Global Insight: +7.0%
• Consensus: +6.4%
• Last Actual: +6.6% (Q2, final)

Unit Labor Costs

• IHS Global Insight: -4.5%
• Consensus: -4.0%
• Last Actual: -5.9% (Q2, final)

What to Look For

• Nonfarm productivity increased by an awesome 6.6% in the second quarter. We believe that it performed even better in the third quarter, increasing 7.0%, on a 4.0% increase in output and a 2.8% drop in hours.

Implications

These strong productivity gains will translate into a 4.5% drop in unit labor costs. The good news is that the productivity gains in the past two quarters are providing a solid boost to corporate earnings. Cash on corporate balance sheets is high, so a modest improvement in business confidence could translate into a burst of spending on investment, and ultimately some hiring, as we move into the middle of 2010.

Friday, November 6 – Employment Report (Oct.)

Nonfarm Payrolls

• IHS Global Insight: -190,000
• Consensus: -175,000
• Last Actual: -263,000 (Sep.)

Unemployment Rate

• IHS Global Insight: 9.9%
• Consensus: 9.9%
• Last Actual: 9.8% (Sep.)

Average Hourly Earnings

• IHS Global Insight: +0.1%
• Consensus: +0.1%
• Last Actual: +0.1% (Sep.)

What to Look For

• Payroll employment is expected to decline 190,000 in October, less than the 263,000 decline in September.

Implications

This would be the least severe decline so far this year, but is still another large drop. Initial unemployment insurance claims are falling, but the improvement is painfully slow. We expect the unemployment rate to edge up another tick, from 9.8% to 9.9%.