Last week's indicators unequivocally point in the direction of a second-quarter consumer spending slowdown. U.S. equity markets rebounded and bond yields trekked downward on slightly reduced expectations of rate action over the next several months by the Federal Reserve.

Next week's indicators will continue to support the broad themes of less forward momentum in consumer spending, but strong underlying fundamentals on the supply side of the economy. In this vein, residential construction activity (April) and motor vehicle sales (May) are expected to notch month-to-month declines. But first-quarter productivity is expected to be revised up, business structures spending is expected to move higher in April, and we expect very solid payroll gains of 180,000 in May.

KEY U.S. DATA RELEASES THIS WEEK

Thursday, June 1 – NONFARM PRODUCTIVITY (Q1, Revised)

Global Insight: 4.1%

Consensus: 4.2%

Last Actual: 3.2% (Q1, Preliminary)

WHAT TO LOOK FOR

Productivity in the first quarter grew quite a bit faster than the BEA initially estimated.

Based on an upward revision to output, and a small downward revision to hours worked, we are expecting an upward revision in productivity from 3.2% to 4.1%.

 

IMPLICATIONS

Productivity growth is still very impressive, and this suggests continued strong growth in corporate earnings, business investment, and private sector hiring. It will also operate to restrain the growth of unit labor costs, and thereby keep long-term inflation trends in check.

Thursday, June 1 – CONSTRUCTION SPENDING (April)

Global Insight: -0.1%

Consensus: 0.0%

Last Actual: 0.9% (March)

WHAT TO LOOK FOR

Single-family housing starts have dropped for three straight months. Since the Census's estimate for spending on single-family units is based on a moving average of single-family starts, we expect spending on single-family homes to drop by as much as a percentage point.

Nonresidential and public construction are both on an upward trend, and we expect that this trend continued in April.

Overall, we project that construction spending dropped 0.1% in April. Excluding improvements, the drop will also be 0.1%.

 

IMPLICATIONS

A cooler housing market will restrain the growth of residential construction activity, but business structures investment and public construction are expected to move up. Overall construction activity is therefore expected to remain solid.

Thursday, June 1 – ISM MANUFACTURING SURVEY (May)

Global Insight: 57.0%

Consensus: 55.7%

Last Actual: 57.3% (April)

WHAT TO LOOK FOR

The ISM manufacturing index is expected to dip slightly to a still-solid 57.0.

Analysts will be watching the prices measure more closely than the overall index for signs of heightened cost pressures.

 

IMPLICATIONS

Manufacturing activity continues to motor ahead, although we expect some drag from the domestic auto industry. Price pressures are expected to continue to be evident in May, as gasoline and diesel fuel prices remained at elevated levels.

Thursday, June 1– MOTOR VEHICLE SALES (May)

Global Insight: 16.1M

Consensus: 16.5M

Last Actual: 16.7M (April)

WHAT TO LOOK FOR

Motor vehicle sales are expected to drop from 16.7 million to 16.1 million in May.

The reduction of fleet activity in the month by GM, Ford, and Chrysler will hurt Big 3 performance, causing the drop in sales.

 

IMPLICATIONS

The domestic auto industry continues to transition to new modes of marketing and pricing, with the goal of preserving better margins even at the expense of lower volumes. This will tend to exert a drag on the overall momentum of the manufacturing industry in the second quarter.

Friday, June 2– EMPLOYMENT (May)

Establishment Employment

Global Insight: 180K

Consensus: 170K

Last Actual: 138K (April)

Unemployment Rate

Global Insight: 4.7%

Consensus: 4.7%

Last Actual: 4.7% (April)

Average Hourly Earnings

Global Insight: 0.3%

Consensus: 0.3%

Last Actual: 0.5% (April)

WHAT TO LOOK FOR

An improved payroll employment performance in May, with the addition of 180,000 jobs after the disappointing 138,000 increase in April.

April was held back by an unusually large drop in retail employment that we do not expect to be repeated this month.

We anticipate the unemployment rate to hold steady at 4.7%

Slower growth in hourly earnings at 0.3% (following the 0.5% surge in April).

If earnings were to repeat April's jump, the pressure on the Federal Reserve to hike interest rates again in June would intensify.

IMPLICATIONS

A solid report on May payrolls would reinforce the view that the fundamentals of the business expansion are solid, notwithstanding an expected pullback in consumer spending. Very strong productivity gains, higher capacity utilization, and tremendous growth in corporate earnings are driving higher demand for new hires. However, if earnings were to repeat April's jump, the pressure on the Federal Reserve to hike interest rates again in June would intensify

Raul Dary

24 Hartwell Ave.
Lexington, MA 02421, USA
Tel: 781.301.9314
Cel: 857.222.0556
Fax: 781.301.9416
raul.dary@globalinsight.com

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