Following a pattern that has provided good buoyancy to corporate profits and the stock market for a number of weeks, the economic reports next week are expected to cross the plate with a generally positive spin.Construction spending in July will be boosted by the strengthening recovery in single-family home permits and starts. Both ISM leading indicators are expected to move up further in August, with the manufacturing index breaking through the 50 level for the first time since January 2008.
Aided by a surge in "cash-for-clunkers" registrations, motor vehicle sales in August will soar to near 15.5-million units (annual rate). Second-quarter productivity will be revised up even higher—thereby providing the Fed a clear checkered flag to keep interest rates low for an extended period. Finally, August payroll employment will decline by a relatively shallow quarter of a million jobs for the second month in a row.
KEY U.S. DATA RELEASES THIS WEEK
Tuesday, September 1 – Construction Spending (Jul.)
Construction Put in Place
Construction Excl. Residential Improvements
What to Look For
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Overall construction to rise by 0.5%.
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Single-family home construction to be up by 3%.
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Nonresidential and multi-family units to decline.
Implications
Spending on single-family homes will be up more than 3% in July, as this residential construction segment has been gaining momentum. This, along with a modest gain in public spending, will offset another plunge in multi-family spending, and a fourth straight monthly drop in nonresidential construction. Overall, spending will be up 0.5%. Excluding residential improvements, spending will rise 0.4%.
Tuesday, September 1 – ISM Manufacturing Index (Aug.)
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IHS Global Insight: 51.0
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Consensus: 50.5
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Last Actual: 48.9 (Jul.)
What to Look For
Implications
All three of the eastern surveys (Empire, Philadelphia, and Richmond) are in positive territory, and industrial production rose decisively in July, with further gains likely in August. With strength in the East and a major rebound in motor vehicle production, the overall index should move above 50. Weak backlogs, still-high inventories, and dismal job prospects should be the major drags on the total, but not enough to offset the recovery in orders and production.
Tuesday, September 1 – Motor Vehicle Sales (Aug.)
What to Look For
Implications
For all the news surrounding the government's Car Allowance Rebate System ("cash for clunkers"), from dealer complaints about paperwork to the Transportation Department's voucher reimbursement timing, the program has been wildly successful at motivating car sales. Augusts' projected SAAR of 15.5-million units would be the highest monthly sales level since December 2007, and would represent the first time since November 2007 that the monthly sales rate beats year-ago levels. There is of course the nagging issue of the post-cash-for-clunkers hangover. Sales are expected to drop sharply in September as payback for this program, and consumers are still expected to be hamstrung by stagnant compensation and difficult labor market conditions for several more months.
Wednesday, September 2 – Productivity (Final Q2)
Nonfarm Business Productivity
Unit Labor Costs
What to Look For
Implications
We expect productivity growth to be revised up to 6.6% on an upward revision to output. Unit labor costs should be little changed from their initial estimate, still showing a steep 5.8% decline. This productivity growth is a remarkable achievement during a difficult business cycle. It is contributing to outright declines in unit labor costs, and a very benign outlook for core inflation. This will provide the Fed with a clear checkered flag to keep rates low for an extended period, thereby providing a sounder basis for a more sustainable recovery as time progresses and various fiscal stimulus programs roll off the calendar.
Thursday, September 3 – ISM Non-Manufacturing Index (Aug.)
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IHS Global Insight: 49.2
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Consensus: 48.0
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Last Actual: 46.4 (Jul.)
What to Look For
Implications
The August ISM index for the non-manufacturing sector is expected to move up by almost 3 points, to 49.2, close to break even. The services activity index is expected to approach the 50 threshold. Financial markets have continued to improve, with long-term Treasury yields moving back down and equity markets moving up. Freight volumes have increased for two months, and there was less general downward pressure on employment markets.
Friday, September 4 – Employment Report (Aug.)
Nonfarm Payrolls
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IHS Global Insight: -250,000
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Consensus: -228,000
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Last Actual: -247,000 (Jul.)
Unemployment Rate
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IHS Global Insight: 9.5%
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Consensus: 9.5%
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Last Actual: 9.4% (Jul.)
Average Hourly Earnings
What to Look For
Implications
Initial unemployment insurance claims remain elevated, and although the economy is growing again, that will take some time to translate into employment growth. We expect the unemployment rate to edge higher to 9.5%, from 9.4% in July. Although the rate declined last month, that was because the labor force fell faster than employment, and it is premature to conclude that unemployment has peaked.