The good news is that corporate cost structures have been ratcheted down, in line with generally lower expectations for sales and price realization. As a result, corporate profits and cash flows moved up with considerable momentum in the third quarter. The bad news is that significant inertia is emerging, in terms of persistent constraints on business spending on new equipment and hiring.

Thus, indicators next week will further confirm that what is emerging in the second half of 2009 is a fragile recovery indeed. Construction spending is expected to have declined in October, while leading ISM indicators in November will be a long way from enthusiastic. November payrolls are expected to have fallen by about 175,000—only a modest improvement from the 190,000 decline in October.

On a positive note, motor vehicle sales are expected to tick upwards to about 10.6-million units (annual rate) in November. While discounts have been reduced relative to spikes in the summer months, significant incentives are still needed to keep consumers strolling into the auto dealer showrooms.

KEY U.S. DATA RELEASES THIS WEEK

Monday, November 30 – Construction Spending (Oct.)

Construction Put in Place

• IHS Global Insight: -0.4%
• Consensus: -0.6%
• Last Actual: +0.8% (Sep.)

Construction Excl. Residential Improvements

• IHS Global Insight: -0.4%
• Last Actual: -0.1% (Sep.)

What to Look For

• Overall, we project that construction spending fell 0.4% in October.
• Excluding improvements, the drop will also be 0.4%.

Implications

The commercial real estate downturn is intensifying, and we expect sharp declines in private nonresidential and private multi-family construction to reflect this. Single-family construction will only increase by about 1–2%, based on recent single-family housing starts numbers. We are, however, expecting another solid gain in public construction, which is been trending up.

Monday, November 30 – ISM Manufacturing Index (Nov.)

• IHS Global Insight: 53.5
• Consensus: 54.7
• Last Actual: 55.7 (Oct.)

What to Look For

• The overall index is expected to decline by 2.2 points, to 53.5.

Implications

The recovery is still solid, but recent regional surveys have been mixed, with Philadelphia firming, but the Empire and Richmond districts losing ground. This shallow pullback in manufacturing activity already was reflected in a slight drop in manufacturing production during October.

Monday, November 30 – Motor Vehicle Sales (Nov.)

• IHS Global Insight: 10.6 Mil.
• Consensus: 10.5 Mil.
• Last Actual: 10.4 Mil. (Oct.)

What to Look For

• We expect a selling rate of 10.6 million, up slightly from 10.4 million in October.

Implications

The weak economic backdrop should keep the November light-vehicle selling rate below the 11-million-unit mark (we expect 10.6 million), although manufacturer incentives will remain high as the automakers try to move the remaining stock of 2009 models.

Thursday, December 3 – Productivity (Final, Q3)

Nonfarm Business Productivity

• IHS Global Insight: +9.5%
• Consensus: +8.5%
• Last Actual: +9.5% (Preliminary, Q3)

Unit Labor Costs

• IHS Global Insight: -2.6%
• Consensus: -4.2%
• Last Actual: -5.2% (Preliminary, Q3)

What to Look For

• Productivity growth should be unchanged, at 9.5%.

Implications

We expect downward revisions to output to be offset by a downward revision to hours. Unit labor costs will be revised to show a smaller decrease of 2.6%, based on upward revisions to compensation.

Thursday, December 3 – ISM Non-Manufacturing Index (Nov.)

• IHS Global Insight: 51.2
• Consensus: 51.2
• Last Actual: 50.6 (Oct.)

What to Look For

• The ISM index for non-manufacturing is expected to edge fractionally higher, to a level of 51.2

Implications

Freight activity has been picking up slowly, and there should be less downward pressure on employment levels in November. Financial markets continue to improve. However, the momentum behind orders appears to be stalling out.

Friday, December 4 – Employment Report (Nov.)

Nonfarm Payrolls

• IHS Global Insight: -175,000
• Consensus: -116,000
• Last Actual: -190,000 (Oct.)

Unemployment Rate

• IHS Global Insight: 10.2%
• Consensus: 10.2%
• Last Actual: 10.2% (Oct.)

Average Hourly Earnings

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

What to Look For

• We expect another substantial decline in payroll employment in November, of 175,000, albeit less steep than October's 190,000 decline.

Implications

Initial unemployment insurance claims are coming down, but the improvement in November was modest, and consumers report labor market conditions still deteriorating. Retail employment will probably do badly, since holiday hiring is likely to be more subdued than the seasonal adjustment process anticipates. We expect the unemployment rate to hold steady at 10.2% after its big jump last month, but it has not yet peaked.