Key U.S. Data Releases and Events

Aided by a surge in "cash-for-clunkers" registrations, motor vehicle sales in August will soar to near 15.5-million units (annual rate). Second-quarter productivity will be revised up even higher—thereby providing the Fed a clear checkered flag to keep interest rates low for an extended period. Finally, August payroll employment will decline by a relatively shallow quarter of a million jobs for the second month in a row.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, September 1 – Construction Spending (Jul.)

Construction Put in Place

• IHS Global Insight: +0.5%
• Consensus: -0.1%
• Last Actual: +0.3% (Jun.)

Construction Excl. Residential Improvements

• IHS Global Insight: +0.4%
• Last Actual: +0.1% (Jun.)

What to Look For

• Overall construction to rise by 0.5%.
• Single-family home construction to be up by 3%.
• Nonresidential and multi-family units to decline.

Implications

Spending on single-family homes will be up more than 3% in July, as this residential construction segment has been gaining momentum. This, along with a modest gain in public spending, will offset another plunge in multi-family spending, and a fourth straight monthly drop in nonresidential construction. Overall, spending will be up 0.5%. Excluding residential improvements, spending will rise 0.4%.

Tuesday, September 1 – ISM Manufacturing Index (Aug.)

• IHS Global Insight: 51.0
• Consensus: 50.5
• Last Actual: 48.9 (Jul.)

What to Look For

• August ISM manufacturing index should break the 50 threshold between advance and decline for the first time since January 2008.

Implications

All three of the eastern surveys (Empire, Philadelphia, and Richmond) are in positive territory, and industrial production rose decisively in July, with further gains likely in August. With strength in the East and a major rebound in motor vehicle production, the overall index should move above 50. Weak backlogs, still-high inventories, and dismal job prospects should be the major drags on the total, but not enough to offset the recovery in orders and production.

Tuesday, September 1 – Motor Vehicle Sales (Aug.)

• IHS Global Insight: 15.5 Mil.
• Consensus: 13.2 Mil.
• Last Actual: 11.3 Mil. (Jul.)

What to Look For

• Sales are expected to jump to 15.5-million units (annual rate), aided by about 600,000 "cash-for-clunkers" registrations.

Implications

For all the news surrounding the government's Car Allowance Rebate System ("cash for clunkers"), from dealer complaints about paperwork to the Transportation Department's voucher reimbursement timing, the program has been wildly successful at motivating car sales. Augusts' projected SAAR of 15.5-million units would be the highest monthly sales level since December 2007, and would represent the first time since November 2007 that the monthly sales rate beats year-ago levels. There is of course the nagging issue of the post-cash-for-clunkers hangover. Sales are expected to drop sharply in September as payback for this program, and consumers are still expected to be hamstrung by stagnant compensation and difficult labor market conditions for several more months.

Wednesday, September 2 – Productivity (Final Q2)

Nonfarm Business Productivity

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

Unit Labor Costs

• IHS Global Insight: -5.8%
• Consensus: -5.8%
• Last Actual: -5.8% (Q2, preliminary)

What to Look For

• Productivity growth in second-quarter 2009 to be revised even higher, to a stellar 6.6%.

Implications

We expect productivity growth to be revised up to 6.6% on an upward revision to output. Unit labor costs should be little changed from their initial estimate, still showing a steep 5.8% decline. This productivity growth is a remarkable achievement during a difficult business cycle. It is contributing to outright declines in unit labor costs, and a very benign outlook for core inflation. This will provide the Fed with a clear checkered flag to keep rates low for an extended period, thereby providing a sounder basis for a more sustainable recovery as time progresses and various fiscal stimulus programs roll off the calendar.

Thursday, September 3 – ISM Non-Manufacturing Index (Aug.)

• IHS Global Insight: 49.2
• Consensus: 48.0
• Last Actual: 46.4 (Jul.)

What to Look For

• The composite index should move up by just under 3 points, to 49.2.

Implications

The August ISM index for the non-manufacturing sector is expected to move up by almost 3 points, to 49.2, close to break even. The services activity index is expected to approach the 50 threshold. Financial markets have continued to improve, with long-term Treasury yields moving back down and equity markets moving up. Freight volumes have increased for two months, and there was less general downward pressure on employment markets.

Friday, September 4 – Employment Report (Aug.)

Nonfarm Payrolls

• IHS Global Insight: -250,000
• Consensus: -228,000
• Last Actual: -247,000 (Jul.)

Unemployment Rate

• IHS Global Insight: 9.5%
• Consensus: 9.5%
• Last Actual: 9.4% (Jul.)

Average Hourly Earnings

• IHS Global Insight: +0.2%
• Consensus: +0.1%
• Last Actual: +0.2% (Jul.)

What to Look For

• Payroll employment is expected to decline by 250,000—about the same order of magnitude as the decline in July.

Implications

Initial unemployment insurance claims remain elevated, and although the economy is growing again, that will take some time to translate into employment growth. We expect the unemployment rate to edge higher to 9.5%, from 9.4% in July. Although the rate declined last month, that was because the labor force fell faster than employment, and it is premature to conclude that unemployment has peaked.