Key US Data Releases and Events

This past week (June 25–29) brought data on the housing market, durable goods, and consumers. New home sales rose in May, while home prices showed signs of stabilizing in April, but there are no indications that a full-fledged rebound is imminent. Durable goods orders rose in May thanks to aircraft and turbines, but core capital goods demand was less robust. With the exception of falling gasoline and food prices, most of the recent news on the consumer front has been lackluster or dismal. Consumer sentiment readings this past week were troubling, with the Conference Board index falling for the fourth straight month and the Reuters/University of Michigan index dropping by more than six points in June. Finally, personal income growth held pace in May, at 0.2%, while real consumer spending ticked up 0.1%.

This coming week (July 2–6) brings the always critical employment report for June. After two disappointing months, markets are wondering how much of the recent weakness was payback for the weather-induced growth earlier in the year, and how much was a genuine loss of momentum. A rebound in payroll growth back above 100,000 would suggest that the labor-market recovery, while sluggish, was still on track. Unfortunately, markets will likely be disappointed. We project that the economy added just 75,000 jobs this past month, no better than April/May. The unemployment rate won’t budge from its 8.2% perch and wage growth will be anemic. Will this convince the Federal Reserve to pull the trigger on QE III at the late-July meeting? Probably not. The committee will want to see what Operation Twist II accomplishes. Additionally, a disinflation trend will be a key ingredient in any Fed decision. It’s simply too early for the Fed to take another and more drastic step. But it will reinforce the narrative of Fed “doves” that the economy is going nowhere fast and will ultimately need extra support.

Monday, July 2 – Construction Spending (May)

Construction Put in Place

• IHS Global Insight: 0.2%
• Consensus:0.2%
• Last Actual: 0.3% (Apr.)

Construction Excl. Residential Improvements

• IHS Global Insight: 0.2%
• Last Actual: -0.2% (Apr.)

What to Look For

• A modest increase in private construction spending.

Implications

Construction spending should eke out a small gain for May, with increases in private residential and nonresidential spending offsetting a sixth straight monthly drop in public spending. We also get revisions dating back to 2010.

Monday, July 2 – ISM Manufacturing Index (Jun.)

• IHS Global Insight: 51.5
• Consensus: 52.0
• Last Actual: 53.5 (May)

What to Look For

• Weaker production and orders.

Implications

The ISM index should slide closer to neutrality thanks to soggy orders and weak production. Employment gains should also cool, but not by as much as the other subindexes. Manufacturing is settling into sluggish growth, and the ISM report is just reflecting the malaise.

Tuesday, July 3 – Motor Vehicle Sales (Jun.)

• IHS Global Insight: 13.8 Mil.
• Consensus: 13.9 Mil.
• Last Actual: 13.7 Mil. (May)

What to Look For

• Minor improvement in motor vehicle sales.

Implications

Light-vehicle sales levels are expected to improve from May, but remain below the pace set during the first four months of 2012. Year-over-year comparisons will continue to look robust, thanks in part to inventory-constrained sales in 2011.

Thursday, July 5 – ISM Non-Manufacturing Index (Jun.)

• IHS Global Insight: 52.9
• Consensus: 53.0
• Last Actual: 53.7 (May)

What to Look For

• Slower growth in nonmanufacturing sectors.

Implications

A weaker jobs profile and headwinds from Europe suggest a slower pace of expansion in the nonmanufacturing sectors during June. Growth in the manufacturing sector has cooled, and nonmanufacturing industries are likely to follow suit, particularly as lower oil prices filter through the energy sector.

Friday, July 6 – Employment Report (Jun.)

Nonfarm Payrolls

• IHS Global Insight: 75,000
• Consensus: 90,000
• Last Actual: 69,000 (May)

Unemployment Rate

• IHS Global Insight: 8.2%
• Consensus: 8.2%
• Last Actual: 8.2% (May)

Average Hourly Earnings

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

What to Look For

• Sub-100,000 payroll growth and no progress on the unemployment rate.

Implications

The incoming evidence on the labor market, including a continuing and gradual uptrend in initial unemployment insurance claims, suggests another soft employment report in June. We expect payroll employment to rise 75,000, little different from the previous two months. The unemployment rate will hold steady, at 8.2%.

by Nigel Gault and Paul Edelstein