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31/07/2011 | Key U.S. Data Release and Events

Nigel Gault

All eyes will be on Washington at the start of the week, looking for an end to the debt-ceiling arguments before the debt limit is hit. The July employment report looms at the end of the week, and is likely to be another soft one.

 

Markets had a rocky week as the August 2 debt-ceiling deadline came ever closer with no deficit-reduction deal in sight. We still believe that an actual debt default—non-payment of interest or principal on Treasury securities—is extremely unlikely, but beyond that it is very hard to know how the drama will play out. In the long-term Treasury market, weak economic data is trumping any fears of debt default, as 10-year Treasury yields fell steeply to around 2.8%.

The weak GDP figures (both for the second quarter itself and for previous quarters through downward revisions) combined with a disappointing durable goods report and a soggy Fed Beige Book to show an economy crawling forward with little momentum. Even if the debt standoff is resolved quickly this week, the extreme uncertainty will surely already have damaged third-quarter growth by hurting consumer and business willingness to hire and spend.

Economic data will take a back seat to the Washington circus at the beginning of the week, as leaders on Capitol Hill will try to stitch together a compromise deal that can pass both Houses and get the president's signature. But we may find that the drama will extend beyond the August 2 "deadline." A temporary debt-ceiling extension pending a final deal is possible. And since the Treasury's cash balances appear better than had been expected, the "true" deadline is probably not August 2 but maybe a week or more later, even though the administration has not acknowledged that.

We do not expect a let-up in the stream of soft economic reports this week. The highlights include the ISM manufacturing index for July (Monday). This index surprised on the upside in June, but we expect it to slip back this month. Personal income and consumption for June (Tuesday) is expected to reinforce the bleak picture for incomes and consumption in the second-quarter national accounts. But the main report of the week will be for employment, on Friday, and even though we do not expect such a weak report as in June, we look for another month of sluggish private employment growth and declining government employment.

Monday, August 1 – Construction Spending (Jun.)

Construction Put in Place

  • IHS Global Insight: 0.2%
  • Consensus: -0.1%
  • Last Actual: -0.6% (May)

Construction Excl. Residential Improvements

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

What to Look For

  • A small improvement overall; public construction declining again.

Implications

We expect a small increase in construction spending for June. Gains in single- family residential construction and private nonresidential construction, and possibly from multi-family residential construction, should offset another drop in public construction.

Monday, August 1 – ISM Manufacturing Index (Jul.)

  • IHS Global Insight: 53.3
  • Consensus: 55.0
  • Last Actual: 55.3 (Jun.)

What to Look For

  • The June ISM survey beat expectations—it will probably fall short in July.

Implications

The ISM manufacturing index likely sank closer to neutrality at 53.3 in July from 55.3 in June as "mediocrity with a positive bias" spread through manufacturing. The orders and shipments indexes averaged 53.1 in June, to set a sluggish tone, and July should see little change in those measures. But employment (at a solid 59.9 in June) is unlikely to remain as robust in July after several months of sluggish output growth. The major drag, however, is likely to be inventories, which spiked over 50 to 54.1 last month—this volatile component cannot sustain such strength in a tepid world where production plans are being scaled back.

Tuesday, August 2 – Personal Income, Consumption, and Prices (Jun.)

Personal Consumption, Nominal

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

Personal Consumption, Real

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

Core PCE Price Index

  • IHS Global Insight: 0.3%
  • Consensus: 0.2%
  • Last Actual: 0.3% (May)

Personal Income

  • IHS Global Insight: 0.2%
  • Consensus: 0.2%
  • Last Actual: 0.3% (May)

What to Look For

  • Weak income growth.
  • Flat real consumption.
  • Core inflation edging higher.

Implications

We expect personal income to rise only 0.2% in June, after rising 0.3% in May. The dismal jobs numbers in May and June have hurt income and spending, and while gasoline prices have edged down from their peak near $4/gallon they are still high. We expect consumer spending to fall 0.1% in nominal dollars, but after adjusting for inflation it should be flat. Since real consumer spending fell in April and then again in May, this would make June the "least-weak" month in a very poor quarter.

The increase in the core PCE price index should remain at 0.3% in June, with the year-on-year rate rising to 1.4% from 1.2% in May. Spiraling inflation is currently not one of our fears, given the considerable slack that exists in the labor market and the sluggish level of wage and income growth. In addition, inflation expectations as measured by the Conference Board survey have fallen in July.

Tuesday, August 2 – Motor Vehicle Sales (Jul.)

  • IHS Global Insight: 11.8 Mil.
  • Consensus: 11.9 Mil.
  • Last Actual: 11.4 Mil. (Jun.)

What to Look For

  • A modest improvement after a disappointing June.

Implications

We expect light-vehicle sales to improve to an 11.8-million annual rate in July from 11.4 million in June. After the sales pull-back in June, we expect July sales to improve, as inventory stocks were growing at the beginning of the month. Coupled with the 2012 model-year vehicles beginning to enter the showrooms, there will likely be more incentive activity used by the automakers to entice consumers.

Wednesday, August 3 – ISM Non-Manufacturing Index (Jul.)

  • IHS Global Insight: 52.8
  • Consensus: 53.8
  • Last Actual: 53.3 (Jun.)

What to Look For

  • Weak, but still positive, growth.

Implications

The nonmanufacturing ISM index, like its manufacturing counterpart, should also slide toward mediocrity with a half-point slippage to 52.8 in July from 53.3, with lethargy dragging the reading toward neutral. The purchasing folks are not excessively gloomy, just facing a reality of sluggish growth.

Friday, August 5 – Employment Report (Jul.)

Nonfarm Payrolls

  • IHS Global Insight: 50,000
  • Consensus: 90,000
  • Last Actual: 18,000 (Jun.)

Unemployment Rate

  • IHS Global Insight: 9.3%
  • Consensus: 9.2%
  • Last Actual: 9.2% (Jun.)

Average Hourly Earnings

  • IHS Global Insight: 0.2%
  • Consensus: 0.2%
  • Last Actual: 0.0% (Jun.)

What to Look For

  • Another soft report with a big drag from the government sector.

Implications

We expect another soft employment report for July. Initial unemployment insurance claims were not as high as in June, so we may see a better private employment outcome than the 57,000 jobs created last month. But the government picture is bleak given state and local cutbacks kicking in at the start of the fiscal year, combined with temporary layoffs of just over 20,000 in Minnesota during its government shutdown. Overall, we expect 50,000 jobs to be created, with 115,000 private jobs offset by a loss of 65,000 government jobs. We expect the unemployment rate to edge up again to 9.3% from 9.2%.

Global Insight (Reino Unido)

 


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