Key U.S. Data Releases and Events

Finally, payroll employment is expected to drop by a relatively shallow 330,000 July. This also represents progress on the road to recovery, with the important caveats that we do not see a turnaround in employment growth until early 2010.

Hence, the unemployment rate will continue to experience upward pressure, and that will keep consumer spending generally restrained, as indeed was the case in the second quarter, when real consumer spending dropped by 1.2% despite huge transfers and tax cuts that yielded a gain of 3.2% in real disposable income. Massive discounts and cash incentive programs, such as the "cash for clunkers" program launched in July, are required to induce consumers to make major life-cycle purchases of durable goods such as autos.

KEY U.S. DATA RELEASES THIS WEEK

Monday, August 3 – Construction Spending (Jun.)

Construction Put in Place

• IHS Global Insight: +0.1%
• Consensus: -0.6%
• Last Actual: -0.9% (May)

Construction Excl. Residential Improvements

• IHS Global Insight: +0.1%
• Last Actual: -0.9% (May)

What to Look For

• Overall construction spending to be flat.
• Single-family construction to rise for the first time in 40 months.
• Multi-family construction to decline.

Implications

Single-family housing starts increased 7.5%, 5.9%, and 14.4% in April, May, and June, respectively. These increases imply that spending on single-family construction in June increased for the first time in 40 months. But multi-family construction, which plunged 10% in May, should plunge again in June. Nonresidential construction has posted four straight monthly gains because of surges in spending on pipelines and refineries. For June, we are assuming flat numbers. We are also assuming flat numbers for public construction. Added together, construction spending should post a negligible 0.1% gain. Excluding improvements, spending will also be up 0.1%.

Monday, August 3 – ISM Manufacturing Index (Jul.)

• IHS Global Insight: 46.2
• Consensus: 46.5
• Last Actual: 44.8 (Jun.)

What to Look For

• The index should move up, but still fall short of the break-even level of 50.

Implications

The ISM manufacturing index should move closer to neutrality, but fall short of 50, at 46.2. Regional readings have been mixed, but on balance suggest that activity is beginning to stabilize. However, the employment index is expected to remain well below the 50 level, and it will take several months of outright gains in output before the employment gauge gets anywhere near the break-even level.

Monday, August 3 – Motor Vehicle Sales (Jul.)

• IHS Global Insight: 11.0 Mil.
• Consensus: 10.0 Mil.
• Last Actual: 9.7 Mil. (Jun.)

What to Look For

• Sales are expected to jump to 11.0 million units, boosted by the successful "cash for clunkers" program.

Implications

The "cash-for-clunkers" program has been such a success that the initial $1 billion allocated has been exhausted—or nearly so. That would represent roughly an extra 250,000 vehicle sales (about 3 million at an annual rate). It is very difficult to guess how many of the extra sales will actually be recorded as July transactions. We have assumed that July sales will rise to an 11.0-million-unit annual rate, from 9.7 million in June, but the range of uncertainty is wide.

Tuesday, August 4 – Personal Income, Consumption and Prices (Jun.)

Personal Consumption, Nominal

• IHS Global Insight: +0.4%
• Consensus: +0.2%
• Last Actual: +0.3% (May)

Personal Consumption, Real

• IHS Global Insight: -0.1%
• Last Actual: +0.2% (May)

Core PCE Price Index

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

Personal Income

• IHS Global Insight: -1.3%
• Consensus: -1.0%
• Last Actual: +1.4% (May)

What to Look For

• Personal income expected to decline by 1.3%, as ARRA-related transfers diminish and downward pressure on hours worked continues.
• Real consumer spending to fall by 0.1%.
• Core PCE deflator to rise by 0.2%.

Implications

Personal income jumped 1.4% in the preceding month (May), boosted temporarily by transfer payments from the American Recovery and Reinvestment Act (ARRA). Income will drop in June by 1.3%, payback for May's gains. Apart from lower transfer payments, we also expect to see wage and salary increases declining, based on falling hours worked. We are expecting a 0.4% gain in consumer spending, but much of this will be from higher energy prices. After allowing for inflation, we expect spending to decline 0.1%. Excluding tax cuts and transfer connected with the ARRA, private-sector compensation remains under downward pressure, and this will continue to keep real consumption spending restrained in the second half of 2009.

The core CPI advanced 0.2% in June. Year-over-year, the core rate was up 1.7%. We are expecting similar results for the core consumption deflator, which should also be up 0.2%. the year-on-year rate is expected to be just 1.5%.

Wednesday, August 5 – ISM Non-Manufacturing Index (Jul.)

• IHS Global Insight: 49.3
• Consensus: 48.0
• Last Actual: 47.0 (Jun.)

What to Look For

• The ISM index for non-manufacturing industries is expected to move up by just over 2 points, to 49.3.

Implications

The activity index should break through 50, driven mainly by consecutive increases in freight volumes during June and July, but also by further improvements in financial market trading conditions. The employment index is expected to move up again, but still land below the 50 mark, while new orders should approach the break-even mark.

Friday, August 7 – Employment Report (Jul.)

Nonfarm Payrolls

• IHS Global Insight: -330,000
• Consensus: -340,000
• Last Actual: -467,000 (Jun.)

Unemployment Rate

• IHS Global Insight: 9.7%
• Consensus: 9.6%
• Last Actual: 9.5% (Jun.)

Average Hourly Earnings

• IHS Global Insight: +0.1%
• Consensus: +0.1%
• Last Actual: 0.0% (Jun.)

What to Look For

• We expect a payroll decline of 330,000, down sharply from the 467,000 drop in June.

Implications

The employment report for July should show that the rate of payroll decline is gradually easing, despite June's disappointment. The unemployment rate is likely to keep rising, hitting 9.7%, compared with 9.5% in June. Although output appears to be stabilizing, we expect employment to keep falling for the rest of the year, albeit at a diminishing pace.