Next week, on the positive side, real consumption spending will kick up by 0.3% in December, and core prices will be essentially flat. Leading ISM indicators on manufacturing and services are expected to track higher, and payroll employment should log in close to unchanged. Fourth-quarter 2009 productivity is expected to register another blowout quarter, and jump 7.1%, with an associated sharp reduction in unit labor costs. No pipeline inflationary pressures will be evident in these numbers.

In the speed-bump category, construction spending is likely to have fallen in January, while auto sales should dip due to slightly less-rich incentives and the sales embargo connected with the massive Toyota recall.

KEY U.S. DATA RELEASES THIS WEEK

Monday, February 1 – Personal Income, Consumption, and Prices (Dec.)

Personal Consumption, Nominal

·         IHS Global Insight: 0.4%

·         Consensus: 0.3%

·         Last Actual: 0.5% (Nov.)

Personal Consumption, Real

·         IHS Global Insight: 0.3%

·         Last Actual: 0.2% (Nov.)

Core PCE Price Index

·         IHS Global Insight: 0.1%

·         Consensus: 0.1%

·         Last Actual: 0.0% (Nov.)

Personal Income

·         IHS Global Insight: 0.2%

·         Consensus: 0.3%

·         Last Actual: 0.4% (Nov.)

What to Look For

·         Personal income expected to rise by 0.2%.

·         Real personal consumption likely moved up 0.3%.

·         The core PCE price index is expected to rise by 0.1%, and be up 1.5% year-on-year.

Implications

Average hourly earnings growth was steady at 0.2% in December. But with hours flat, wage and salary income likely grew more slowly in December than in November. We may see respectable increases in dividend payments, rental income, and farm income. But gains in the larger categories will be meager. Altogether, we project that personal income rose 0.2% in December. With respect to consumption, control retail sales (the component of retail sales that feeds the consumer spending numbers in the national income accounts) slipped 0.3% during December. But auto sales were up, and since December was unusually cold and wet, spending on heating homes was up significantly. Altogether, we project that consumer spending increased 0.4% during December. Inflation adjusted, spending will be up 0.3%. The core CPI rose 0.1% in December. Based on this reading, we project that the core consumption deflator also increased by 0.1%. Year-on-year, core prices (after rounding up) will be up 1.5%. Bottom line, we are looking at moderate consumption growth with little inflation pressure.

Monday, February 1 – Construction Spending (Dec.)

Construction Put in Place

·         IHS Global Insight: -0.8%

·         Consensus: -0.5%

·         Last Actual: -0.6% (Nov.)

Construction Excl. Residential Improvements

·         IHS Global Insight: -0.9%

·         Last Actual: -0.1% (Nov.)

What to Look For

·         We are expecting weak construction spending numbers for December across all major categories, except for single-family construction, which should be flat.

·         Excluding residential improvements, spending will drop 0.9%.

Implications

Nonresidential and multi-family housing construction will be in the red, while single-family housing construction, which posted strong gains during June through November, will be flat. Government construction might eke out a small gain. Altogether, we project that construction spending dropped 0.8% in December.

Monday, February 1 – ISM Manufacturing Index (Jan.)

·         IHS Global Insight: 56.5

·         Consensus: 55.2

·         Last Actual: 55.9 (Dec.)

What to Look For

·         The purchasing managers index should climb to 56.5.

Implications

Regional manufacturing surveys for January suggest another gain for the national index. Orders and production should report very solid readings, but the two key scores to watch should be export orders and inventories. Solid fourth-quarter GDP growth was heavily dependent on both exports and inventories, and the January ISM report will be the first 2010 national readings on those subjects. The ISM score for December inventories was still underwater at 43, and export orders cooled a tad to 54.5; solid readings for both would be a major plus for the outlook.

Tuesday, February 2 – Motor Vehicle Sales (Jan.)

·         IHS Global Insight: 10.5 Mil.

·         Consensus: 11.0 Mil.

·         Last Actual: 11.2 Mil. (Dec.)

What to Look For

·         Autos sales are expected to slip to a rate of 10.5 million.

Implications

After the comparatively brisk selling rate of 11.2-million units in December (annual rate), light-vehicle sales are expected to slow again in January, to 10.5 million. Compounding the slower sales rate will be the Toyota recall and suspension of sales on those models affected by the defective accelerator-pedal mechanisms.

Wednesday, February 3 – ISM Non-Manufacturing Index (Jan.)

·         IHS Global Insight: 51.5

·         Consensus: 50.9

·         Last Actual: 50.1 (Dec.)

What to Look For

·         The ISM index for non-manufacturing industries is expected to move up by just over a point in January, to 51.5.

Implications

Freight volumes picked up in January after a weather-induced slump in December, and financial markets did well for most of the month, so activity should pick up by a few ticks. We also expect orders to rebound. However, we do not expect much of an improvement in the employment index—it will still track below the 50 threshold.

Thursday, February 4 – Productivity (Preliminary Q4)

Nonfarm Business Productivity

·         IHS Global Insight: 7.1%

·         Consensus: 6.0%

·         Last Actual: 8.1% (Final Q3)

Unit Labor Costs

·         IHS Global Insight: -4.8%

·         Consensus: -2.5%

·         Last Actual: -2.5% (Final Q3)

What to Look For

·         We expect a 7.1% increase in productivity for the fourth quarter, based on a 7.2% jump in output and a 0.1% increase in hours.

Implications

The increase comes on top of two quarters already showing spectacular productivity gains. The 6.9% and 8.1% increases in the second and third quarters, however, were mostly the result of companies slashing jobs. The fourth-quarter jump resulted from companies raising output. While these spectacular increases are cyclical, they are stronger than what we have seen in previous recoveries. Going forward, productivity growth will decelerate significantly as companies ramp up their hiring. The strong productivity reading will result in labor costs falling 4.8%.

Friday, February 5 – Employment Report (Jan.)

Nonfarm Payrolls

·         IHS Global Insight: no change

·         Consensus: +13,000

·         Last Actual: -85,000 (Dec.)

Unemployment Rate

·         IHS Global Insight: 10.1%

·         Consensus: 10.0%

·         Last Actual: 10.0% (Dec.)

Average Hourly Earnings

·         IHS Global Insight: 0.2%

·         Consensus: 0.2%

·         Last Actual: 0.2% (Dec.)

What to Look For

·         We expect nonfarm payrolls to be flat in January, following an 85,000 decline in December.

·         The unemployment rate should tick up slightly, to 10.1%.

Implications

Initial unemployment claims continue to trend down (although they suffered what should be a temporary setback late in the month). Consumer assessments of the labor market were less negative than in December, according to the Conference Board, and the various regional activity surveys published for January have generally shown improved employment indicators. Weather is a wild card. Bad weather hurt construction employment in December, but it's uncertain how much of a bounce back we might see in January, because the weather early in the month was unusually cold across much of the country. We expect the unemployment rate to edge up slightly, to 10.1%. Note that this report will include historical revisions to employment that are expected to take more than 800,000 off the payroll count, raising job losses in the recession to 8.0 million.