Key U.S. Data Releases and Events

Economic indicators next week will point in the direction of further weakness in the economy during early 2009, with January services activity expected to decline, motor vehicle sales taking another lurch downwards, and payroll employment falling by nearly 600,000, the largest monthly drop in this recession so far. The only silver lining is that productivity continued to expand through the end of 2008, so the business sector appears to be staying on top of the recession cycle fairly well, although inventories look too rich relative to sales.

KEY U.S. DATA RELEASES THIS WEEK

Monday, February 2 – Personal Income, Consumption and Prices (Dec.)

Personal Consumption, Nominal

Global Insight: -1.1%

Consensus: -0.9%

Last Actual: -0.6% (Nov.)

Personal Consumption, Real

Global Insight: -0.4%

Last Actual: +0.6% (Nov.)

Core PCE Price Index

Global Insight: 0.0%

Consensus: 0.0%

Last Actual: 0.0% (Nov.)

Personal Income

Global Insight: -0.5%

Consensus: -0.4%

Last Actual: -0.2% (Nov.)

What to Look For

• Declining labor income will drag personal income lower in December. Overall, we expect a 0.8% drop in wages and salaries, and a 0.5% drop in personal income.
• Real consumption to drop by 0.4%.
• Core PCE index to be flat.

Implications

Job losses, declines in both stock prices and home prices, and tight credit conditions took a heavy toll on the consumer in December. "Control" retail sales (the retail sales used to calculate various consumer spending categories in the national income accounts) dropped 3.0% in December. Light-vehicle sales edged up two tenths (from a 26-year low) to a 10.3-million-unit rate. We are expecting a small increase in consumer spending on services. Added up, we expect a 1.1% drop in consumer spending. Real spending will drop 0.4%, less than nominal spending, because of falling prices. But we also expect spending in both October and November to be revised down. The core CPI was flat in December. Based on this, we project a flat reading for the core consumption price deflator. Its year-on-year growth rate, 1.7%, will be well within the Federal Reserve's comfort zone of 1–2%, and is heading lower. The risk now is deflation, not inflation.

Monday, February 2 – Construction Spending (Dec.)

Construction Put in Place

Global Insight: -0.6%

Consensus: -1.2%

Last Actual: -0.6% (Nov.)

Construction Excl. Residential Improvements

Global Insight: -0.7%

Last Actual: -0.4% (Nov.)

What to Look For

• Top-level construction to be down by 0.6%.
• A sharp drop in residential construction.
• Modest increases in public and private nonresidential construction.
• Excluding residential improvements, spending will drop 0.7%.

Implications

We are expecting a sharp drop (7–8%) in single-family residential construction, a small drop in multi-family construction, and modest increases in public and private nonresidential construction. This is a pattern that we have seen for many months, but private nonresidential construction is expected to turn down sharply in 2009, indicating some really rough months overall for construction early in 2009. The fiscal-stimulus package will put a significant amount of funding into the public infrastructure pipeline, but this is not expected to have a material impact on overall construction activity until the second half of the year.

Monday, February 2 – ISM Manufacturing Index (Jan.)

Global Insight: 32.5

Consensus: 33.0

Last Actual: 32.9 (Dec.)

What to Look For

• Overall index to be little changed in January.

Implications

The ISM-manufacturing index should be little changed in January, at 32.5. Vendor performance should become more of a drag on the index, while orders and shipments remain depressed, but perhaps a bit less so. So far in the last three months, vendor performance has remained close to the 50 threshold that separates improvement from decline (it is the sole component of the overall index not in dire shape), but as the recession lengthens out, lead times from suppliers should close up and vendor performance should improve. All the regional surveys continue to show that the manufacturing sector remains under severe downward pressure from collapsing demand and rising inventories.

Tuesday, February 3 – Motor Vehicle Sales (Jan.)

Global Insight: 9.7 Mil.

Consensus: 10.2 Mil.

Last Actual: 10.3 Mil. (Dec.)

What to Look For

• Sales volumes are expected to decline to 9.7-million units.

Implications

There will be no "Obama effect" on light-vehicle sales just yet, as the winter freeze will continue in the vehicle sales market during January. With one of the last avenues of monthly sales volume—daily rental fleet companies—hitting a dead-end, and continuing consumer retrenchment, January SAAR sales are projected to be 9.7-million units. Severely depressed auto production will continue to exert a downward drag on overall real growth in the first quarter of 2009.

Wednesday, February 4 – ISM Nonmanufacturing Index (Jan.)

Global Insight: 38.0

Consensus: 39.0

Last Actual: 40.1 (Dec.)

What to Look For

• We expect that the overall demand for services declined by a couple of points in January, to 38.0.

Implications

The ISM index for nonmanufacturing services is expected to decline by a couple of points in January, to 38. Freight activity continues to head south, as businesses continue to cut back on production and inventories remain rich. While conditions in the interbank and credit financial markets improved somewhat over the past few weeks, employment market conditions deteriorated. Thus, we expect that demand for services overall fell back in January, after an upward bounce in December.

Thursday, February 5 – Productivity (Preliminary Q4)

Nonfarm Business Productivity

Global Insight: +2.1%

Consensus:+1.0%

Last Actual: +1.3% (Final Q3)

Unit Labor Costs

Global Insight: +4.1%

Consensus: +3.0%

Last Actual: +2.8% (Final Q3)

What to Look For

• Nonfarm productivity to expand by 2.1% in fourth-quarter 2008 on a sharp drop in hours worked.

Implications

We expect fourth-quarter productivity growth to come in at 2.1%, on a 5.5% drop in output offset by an even steeper 7.4% drop in hours. Self-employment fell 18% in the fourth quarter, accounting for part of the drop in hours. Unit labor costs will rise by 4.1%, on a 6.2% increase in hourly compensation and a 2.1% increase in productivity. The compensation increase will probably be revised down in subsequent revisions, though, as data on bonuses becomes available. Productivity growth has been remarkably solid through the recession—this is widely overlooked, positive underlying fundamental for the economy.

Friday, February 6 – Employment Report (Jan.)

Nonfarm Payrolls

Global Insight: -600,000

Consensus: -538,000Last Actual: -524,000 (Dec.)

Unemployment Rate

Global Insight: 7.5%

Consensus: 7.5%

Last Actual: 7.2% (Dec.)

Average Hourly Earnings

Global Insight: +0.2%

Consensus: +0.2%

Last Actual: +0.3% (Dec.)

What to Look For

• Another sharp drop in employment of near 600,000.
• Unemployment rate to rise by 0.3 point, to 7.5%.

Implications

The evidence from unemployment insurance claims continues to show the labor market deteriorating rapidly. We expect job losses of near 600,000, which would be the worst month so far in this recession. In addition, we expect a rise in the unemployment rate to 7.5% in January, from 7.2% in December.