Indicators next week will confirm that the economy started the third quarter with diminished momentum. The ISM manufacturing index is expected to slide down slightly, while the ISM services index should remain roughly unchanged. Construction spending ended the second quarter on a downbeat note, and real consumer spending just barely chinned the bar in June.

On the positive side, motor vehicle sales are expected to rebound in July, and we do expect modest gains in private payroll employment.

KEY U.S. DATA RELEASES THIS WEEK

Monday, August 2 – Construction Spending (Jun.)

Construction Put in Place

• IHS Global Insight: -0.6%
• Consensus: -0.5%
• Last Actual: -0.2% (May)

Construction Excl. Residential Improvements

• IHS Global Insight: -0.7%
• Last Actual: -0.1% (May)

What to Look For

• We expect a 0.6% drop in construction spending during June.

Implications

Based on the latest housing starts numbers, we are expecting a drop of more than 3% in single-family construction spending. Multi-family housing construction spending fell 6.3% in May, and another sizable drop in June is likely. Private nonresidential construction has leveled since February. This is good news, considering that this has been the economy's worst-performing sector since the recession ended. Still, we project that spending levels for this category will continue to drop, because a number of key categories (including offices, commercial, hotels, and higher education) are still trending down. Public construction increased for the third-straight month in May, because of solid gains in infrastructure spending. Increases in infrastructure spending should keep public construction in the black the rest of this year.

Monday, August 2 – ISM Manufacturing Index (Jul.)

• IHS Global Insight: 54.0
• Consensus: 54.0
• Last Actual: 56.2 (Jun.)

What to Look For

• The index is expected to fall by a couple of points, to 54.0.

Implications

Slower growth is in the cards for the manufacturing sector. The general conditions readings in the Empire and Philadelphia surveys both faltered, while Richmond and Dallas surveys backtracked as well. The Chicago purchasing managers index cast a dissenting vote, though, and has a decent track record in predicting the national ISM level.

Tuesday, August 3 – Personal Income, Consumption, and Prices (Jun.)

Personal Consumption, Nominal

• IHS Global Insight: 0.0%
• Consensus: 0.1%
• Last Actual: 0.2% (May)

Personal Consumption, Real

• IHS Global Insight: 0.1%
• Last Actual: 0.3% (May)

Core PCE Price Index

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

Personal Income

• IHS Global Insight: 0.1%
• Consensus: 0.2%
• Last Actual: 0.4% (May)

What to Look For

• Personal income is expected to creep up only 0.1%.
• Real spending should edge up just 0.1%.
• Core PCE index expected to rise 0.1%.

Implications

The June income and consumption report should underline the softness in consumer spending, and the weakness of income growth given the weak labor market. Personal income is expected to increase only 0.1%. Wages and salaries probably fell, as private-sector hours declined and the government employed fewer temporary Census workers. In addition, transfer income was damaged by the expiry of extended unemployment insurance programs. We expect June consumer spending to be flat in nominal dollars, and up just 0.1% in real dollars, allowing for a small decline in prices (led by gasoline). The core personal consumption price index for June should rise just 0.1% on the month, but the year-on-year rise is likely to come in at 1.5% (higher than the last observation of 1.3%) because of revisions implied by the new national accounts estimates. This technical revision will not quell deflation fears, though.

Tuesday, August 3 – Motor Vehicle Sales (Jul.)

• IHS Global Insight: 11.7 Mil.
• Consensus: 11.6 Mil.
• Last Actual: 11.1 Mil. (Jun.)

What to Look For

• Auto sales to bounce back, mainly due to greater sales incentives.

Implications

July's light-vehicle selling rate should improve to 11.7 million, from June's disappointing 11.1 million result, as automakers have tried to jump-start the summer selling season with various incentive programs.

Wednesday, August 4 – ISM Non-Manufacturing Index (Jul.)

• IHS Global Insight: 54.2
• Consensus: 53.0
• Last Actual: 53.8 (Jun.)

What to Look For

• The ISM index for services is expected to see a marginal improvement in July, moving up by about half a point to 54.2.

Implications

The employment index picked up slightly, but transportation services and freight volumes appear to have slowed down a notch. Tourism activity is reportedly solid, despite the Gulf oil spill and weak consumer confidence numbers. Financial markets, in general, saw a better month, as Eurozone crisis fears subsided and equities rebounded.

Friday, August 6 – Employment Report (Jul.)

Nonfarm Payrolls

• IHS Global Insight: -120,000
• Consensus: -60,000
• Last Actual: -125,000 (Jun.)

Unemployment Rate

• IHS Global Insight: 9.6%
• Consensus: 9.6%
• Last Actual: 9.5% (Jun.)

Average Hourly Earnings (All Employees)

• IHS Global Insight: 0.1%
• Consensus: 0.1%
• Last Actual: -0.1% (Jun.)

What to Look For

• Overall payrolls to decline by 120,000.
• Private payrolls to advance only 70,000.
• Unemployment rate to tick upward by a tenth of a point, to 9.6%.

Implications

The July employment report should reinforce recent evidence of an anemic labor market recovery. We expect overall payrolls to decline 120,000 due to another 140,000 temporary Census workers dropping off government payrolls. We expect to see private payroll employment edging higher again, but only by 70,000, with temporary workers again a key driver. State and local government employment likely took a hit at the start of the new fiscal year (we expect a 50,000 decline). We expect the unemployment rate to edge up to 9.6%, from 9.5%.