Key US Data Releases and Events

With GDP and employment on the docket, markets took a break from Europe toward the end of this past week and focused instead on the domestic picture. The outcome was not pretty. The economy added just 69,000 jobs in May, far below expectations. Compounding the bad news was a net downward revision to March and April of 49,000; we have now seen back-to-back months of sub-100,000 job growth. Coupled with Thursday’s GDP report, which showed slower first-quarter growth (1.9%) than initially estimated, the data suggest that the recovery may be running out of steam. Stocks sank sharply following the jobs report, and the S&P 500 has lost 8.5% since the beginning of May. The 10-year Treasury rate dipped to 1.44%—an all-time low—before settling at 1.47% by midday Friday.

Sluggish employment growth and weaker consumer confidence are a drag on the economy, and the recent trend is eerily reminiscent of 2011. After May’s payroll figures and the downward revisions to prior months, the labor market looks to be on much shakier footing than previously thought. From the Fed’s perspective, this development may be enough to tip the balance in favor of more immediate action, manifesting itself perhaps as an extension of “operation twist” at the mid-June FOMC meeting.

The past week (May 28–June 1) also brought data on the housing market, manufacturing, and consumers. We learned on Tuesday that home prices hit post-crisis lows, but prices seem to be stabilizing in most cities, as evidenced by moderating year-on-year declines. The consumer confidence index took another hit in May, and has not been well-aligned with the consumer sentiment index in recent months; confidence tends to react more to the labor market. Personal income and spending both rose modestly in April, while the saving rate matched a four-year low. The ISM manufacturing index cooled from April, but was in line with the March reading. And a mixed construction spending report for April was boosted by upward revisions to March and February.

The data calendar is lighter this coming week (June 4–8), with few implications for monetary policy. The ISM non-manufacturing index should fall for a third consecutive month, but remain comfortably in expansion territory. A second pass at first-quarter labor productivity is likely to show a less severe slowdown than initially estimated, as employee hours were revised down by more than growth. Finally, the trade deficit is expected to shrink by about $4 billion as imports fall by more than exports, thanks to lower oil prices.

Tuesday, June 5 – ISM Non-Manufacturing Index (May)

• IHS Global Insight: 53.0
• Consensus: 53.5
• Last Actual: 53.5 (Apr.)

What to Look For

• A slight decline in the pace of nonmanufacturing-sector growth

Implications

Several economic indicators suggest that the recovery has hit a soft patch, and nonmanufacturing industries are likely to expand at a slightly slower pace in May than in April.

Wednesday, June 6 – Productivity (Final Q1)

Nonfarm Business Productivity

• IHS Global Insight: -0.3%
• Consensus: -0.6%
• Last Actual: -0.5% (Preliminary Q1)

Unit Labor Costs

• IHS Global Insight: 1.3%
• Consensus: 2.2%
• Last Actual: 2.0% (Preliminary Q1)

What to Look For

• A smaller first-quarter decline in productivity than initially estimated

Implications

We project that the decline in labor productivity will be trimmed in the final first-quarter reading, as fewer employee hours outweighed slower-than-anticipated output growth. Unit labor costs will be up 1.3%, less than first estimated, on slower compensation growth.

Friday, June 8 - Trade Balance (Apr.)

• IHS Global Insight: -$48.0 billion
• Consensus: -$49.5 billion
• Last Actual: -$51.8 billion (Mar.)

What to Look For

• Weak exports, and weaker imports

Implications

The foreign trade deficit is expected to fall back to $48.0 billion in April, after a sharp bounce to $51.8 billion in March. Imports and exports should both fall, but imports should drop faster. A sharp decline in the oil import bill (due to falling prices and volumes) will combine with lower capital goods and automotive imports. Exports are expected to retreat as industrial supplies contract sharply, and capital and consumer goods post smaller losses. Foreign trade should be a drag for GDP growth in the second quarter of 2012.

by Nigel Gault and Paul Edelstein