But the labor market updates were disappointing. Initial claims for unemployment rose by 17,000 in the latest survey week, and the employment report showed the economy losing another 263,000 jobs in September as the unemployment rate rose to 9.8%.

The key release for this week will be the trade balance (October 9), which should show a widening trade deficit due to higher oil prices. In addition to this, we are expecting almost no change in the ISM index for non-manufacturing industries (October 5).

KEY U.S. DATA RELEASES THIS WEEK

Monday, October 5 – ISM Non-Manufacturing Index (Sep.)

• IHS Global Insight: 48.5
• Consensus: 50.0
• Last Actual: 48.4 (Aug.)

What to Look For

• The ISM index for non-manufacturing industries is expected to remain about unchanged, near 48.5 in September.
• With banks under very tight cost controls, the employment index is expected to remain about unchanged.

Implications

The service industries are lagging about a month behind the recovery in manufacturing, because they do not directly or immediately benefit from the recent sharp turn in the inventory liquidation cycle or specific fiscal stimulus incentives such as the "cash-for-clunkers" rebate. Production is leading the business cycle recovery, and service industries are only a few paces behind.

Friday, October 9 – Trade Balance (Aug.)

• IHS Global Insight: -$33.5 Billion
• Consensus: -$33.0 Billion
• Last Actual: -$32.0 Billion (Jul.)

What to Look For

• We expect the trade deficit to widen to $33.5 billion in August from $32.0 billion in July.
• The main reason for the wider deficit is a larger oil bill caused by higher oil prices (partly offset by lower oil import volumes).

Implications

Overall, both exports and imports should continue to grow, which would be good news for the recovery in world trade. As the U.S. inventory cycle turns upwards, and firms need to replenish stocks, we expect the resulting import bounce to outpace the rise in exports. That means a wider trade deficit—but in a context of stronger growth.