Key US data releases and events

Are markets pricing in a “fiscal cliff” deal after January 1? After falling for most of the shortened trading week due to a lack of progress on the fiscal cliff, stocks staged a mild rebound on Friday following reports that President Obama would make a scaled-back offer to avert a crisis. Chances that a deal can pass the Republican-controlled Congress are uncertain, but the market’s reaction highlights a couple of important points. First, for now, so long as the two sides are talking and some sort of deal (any deal) is on the table, markets will keep their cool. The bad scenario is when there is no perceived progress and no communication between lawmakers. Second, markets probably view January 1 as a “soft deadline” for the fiscal cliff, and would give lawmakers time to reach a deal early next year. But again, the two sides would have to be locked in negotiations for markets to remain patient.

Positive housing news this week. Data this past week focused primarily on the housing market, and the news was generally positive. The Case-Shiller home price index achieved 4.3% year-on-year gains in October. This is the highest reading since mid-2010, before home prices “double-dipped.” An improved supply/demand balance is expected to drive home prices higher in 2013, but at nowhere near the pace set during the housing bubble. Meanwhile, new home sales increased in November; they have moved little during the fourth quarter, but are up 15% from a year ago.

A decent jobs report on tap (all things considered). The data calendar for this shortened holiday week culminates with the always-critical jobs report for December. The news from the labor market remains positive despite the fiscal cliff. Initial unemployment claims are down and consumers still view their jobs prospects as improving. We expect that the economy added 160,000 jobs in December, better than November but not enough to pull down the unemployment rate from 7.7%. In other data news, the ISM Manufacturing Index likely climbed back into expansion territory during December after a slight dip in November. The ISM Non-Manufacturing Index, meanwhile, was likely unchanged in December, at 54.7, suggesting modest but steady growth in these sectors of the economy.

Wednesday, 2 January – Construction Spending (Nov.)

Construction put in place

• IHS Global Insight: 0.9%
• Consensus: 0.6%
• Last Actual: 1.4% (Oct.)

Construction excl. residential improvements

• IHS Global Insight: 1.0%
• Last Actual: 1.3% (Oct.)

What to look for

• Private residential construction props up the headline figure

Implications

Construction spending likely increased in November on another solid gain in the private residential category. Nonresidential construction was likely higher on a solid gain in power structures, as companies raced to put up wind turbines because of a tax credit that expires at the end of this year.

Wednesday, 2 January – ISM Manufacturing Index (Dec.)

• IHS Global Insight: 52.0
• Consensus: 50.2
• Last Actual: 49.5 (Nov.)

What to look for

• A slight bounce on improved inventories

Implications

The ISM Manufacturing Index likely bounced up to 52.0 in December, from 49.5 in November. This would be the highest reading since May, but still considered mediocre. November’s abnormally weak reading for inventories should improve, helping to push the index above the breakeven point.

Thursday, 3 January – Motor Vehicle Sales (Dec.)

• IHS Global Insight: 15.2 Mil.
• Consensus: 15.2 Mil.
• Last Actual: 15.5 Mil. (Nov.)

What to look for

• Continued strength despite a slight dip

Implications

Although slightly below the November results, December light vehicle sales should remain strong. Ample inventory and year-end incentive programs will combine with continued Hurricane Sandy replacement demand to help support sales.

Friday, 4 January – Employment Report (Dec.)

Nonfarm payrolls

• IHS Global Insight: 160,000
• Consensus: 150,000
• Last Actual: 146,000 (Nov.)

Unemployment rate

• IHS Global Insight: 7.7%
• Consensus: 7.7%
• Last Actual: 7.7% (Nov.)

Average hourly earnings

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

What to look for

• Ongoing labor market improvement despite fiscal cliff

Implications

The news from the labor market remains positive. Initial unemployment insurance claims have fallen sharply following the surge due to Hurricane Sandy. And despite fiscal cliff jitters, consumers still say that the labor market is improving.  As a result, we expect that 160,000 jobs were added in December, better than the 146,000 increase in November. Construction employment should rebound after a drop in November that may have been hurricane-related. We expect the unemployment rate to hold steady at 7.7%.

Friday, 4 January – ISM Non-Manufacturing Index (Dec.)

• IHS Global Insight: 54.7
• Consensus: 54.3
• Last Actual: 54.7 (Nov.)

What to look for

• Modest but steady growth

Implications

The ISM Non-Manufacturing Index was likely unchanged in December at 54.7, suggesting modest but steady growth in non-manufacturing sectors. This is consistent with our view of the overall economy heading into 2013.

by Nigel Gault and Paul Edelstein