Key U.S. Data Releases and Events

In other key developments, the Federal Reserve will kick-start its program to purchase GSE debt and mortgage-backed securities. The Fed announced back on November 25 that it would purchase up to $100 billion in GSE direct obligations and $500 billion of mortgage-backed securities. One key barometer will be whether this program will be sufficient to drive mortgage rates down further. While some of this Fed action has already been priced into the market, we could see perhaps further declines in the 30-year fixed benchmark of perhaps 10–15 or so basis points, thereby bringing these rates below the key 5% threshold. That should provide further momentum behind the recent surge in mortgage applications.

KEY U.S. DATA RELEASES THIS WEEK

Monday, January 5 – Construction Spending (Nov.)

Construction Put in Place
Global Insight: -1.8%
Consensus: -1.2%
Last Actual: -1.2% (Oct.)

Construction Excl. Residential Improvements
Global Insight: -1.8%
Last Actual: -0.9% (Oct.)

What to Look For

• Overall construction to decline by 1.8%.
• Single-family residential construction to be down sharply, by 6–7%.

Implications

Based on November's housing starts numbers, single-family residential construction should drop 6–7%. We are expecting further drops in multiple-family residential spending and in nonresidential construction, as well as flat public construction numbers. Added up, spending will be down 1.8%. Excluding improvements, spending will also be down 1.8%.

Monday, January 5 – Motor Vehicle Sales (Dec.)

Global Insight: 9.5 Mil.
Consensus: 10.0 Mil.
Last Actual: 10.2 Mil. (Nov.)

What to Look For

• Motor vehicle sales to slide down to a 2008 low of 9.5-million units (annual rate).

Implications

Even though the first checks of the $17.4-billion bailout package have arrived for GM and Chrysler LLC, and GMAC has been approved status as a bank holding company, thereby injecting credit into the auto loan market (with initial benefits primarily for GM, but spreading eventually to other automakers), these developments came too late to impact December sales. Moreover, we see the all-time low consumer confidence readings as a sign that auto sales continued to drop in December.

Tuesday, January 6 – ISM Nonmanufacturing Index (Dec.)

Global Insight: 37.2
Consensus: 37.0
Last Actual: 37.3 (Nov.)

What to Look For

• The overall index should be roughly unchanged in December.

Implications

The ISM index for services should be little changed in December, at 37.2. We expect that the business activity index bounced up slightly, although indicators are mixed. Freight activity declined sharply as production was slashed, auto sales were weak, and equity markets remained negative. But mortgage applications have jumped in the past several weeks, while pressures in the debt and interbank markets have eased.

Friday, January 9 – Employment Report (Dec.)

Nonfarm Payrolls
Global Insight: -580,000
Consensus: -490,000
Last Actual: -533,000 (Nov.)

Unemployment Rate
Global Insight: 7.1%
Consensus: 7.0%
Last Actual: 6.7% (Nov.)

Average Hourly Earnings
Global Insight: +0.2%
Consensus: +0.2%
Last Actual: +0.4% (Nov.)

What to Look For

• Total payroll employment to decline by 580,000.
• Unemployment rate to jump from 6.7% to 7.1%.

Implications

December is likely to see another huge drop in payroll employment. We expect a 580,000 decline, following the 533,000 fall in November. Initial unemployment insurance claims continue to climb rapidly (aside from a holiday-distorted drop last week), and hiring is drying up. We also expect the unemployment rate to jump again, rising to 7.1%, from 6.7% in November, as those who lose their jobs are finding it increasingly difficult to find new ones.