Key U.S. Data Releases and Events

Next week, the indicators will point in the direction of further downward pressure on the economy, as January construction spending will drop yet again, the February ISM indicators will line up below the critical 50 threshold, and February payroll employment is expected to drop slightly for the second consecutive month. Partially offsetting these weak reports, February motor vehicle sales should get an incentive-charged boost and fourth-quarter 2007 productivity will be revised up slightly.

KEY U.S. DATA RELEASES AND EVENTS THIS WEEK

Monday, March 3 – Construction Spending (Jan.)

Construction Put in Place
Global Insight: -0.7%
Consensus: -0.7%
Last Actual: -1.1% (Dec.)

Construction Excl. Residential Improvements
Global Insight: -0.8%
Last Actual: -1.5% (Dec.)

What to Look For

• Total construction spending to decline by 0.7%.
• Single family construction to drop sharply.
• Multi-family construction to dip slightly.
• Government and other nonresidential construction likely to be up, as a partial offset.

Implications

In December, private nonresidential construction continued its remarkable run, increasing for the 29th time in 30 months. January should be another strong month. We also expect a modest gain for government construction. Single-family residential construction will drop more than 5%, though, while multi-family construction posts a modest loss. Added up, we project that construction spending dropped 0.7% in January. Excluding residential improvements, the drop will be 0.8%.

Nevertheless, the outlook for nonresidential construction continues to dim. In its January Survey of Bank Loan Officers, the Federal Reserve reported that a record 80% of banks raised standards on commercial property loans over the previous three months. According to the survey, one-third of the responding banks reported tightening their standards on commercial and industrial loans, while two-fifths said they widened the spreads of interest rates over their cost of funds.

Monday, March 3 – ISM Manufacturing Survey (Feb.)

Global Insight: 45.0
Consensus: 48.5
Last Actual: 50.7 (Jan.)

What to Look For

• Index is expected to slide by 5.7 points, to 45.0.

Implications

The ISM-manufacturing reading is expected to slide to 45.0 in February, from 50.7 in January. The manufacturing sector continues to struggle against strong headwinds from reduced housing and building materials output, combined with downward pressure on motor vehicles and parts. Nevertheless, some industries are benefiting from import substitution and strong export orders. Overall, however, manufacturing is expected to exert a negative drag on growth in early 2008.

Monday, March 3 – Motor Vehicle Sales (Feb.)

Global Insight: 15.5 Mil.
Consensus: 15.5 Mil.
Last Actual: 15.3 Mil. (Jan.)

What to Look For

• Aided by substantially sweetened incentives, sales should bounce up slightly, to 15.5 million (annual rate).

Implications

The weak economy and slumping consumer confidence are really hurting auto sales. Automakers significantly raised incentives in February, which should generate a slightly higher selling rate than in January. While incentives are keeping sales from falling off the edge of the table, manufacturers recently announced another round of production reductions, and this will exert a downward drag on growth in the first half of 2008.

Wednesday, March 5 – Productivity (Final Q4)

Nonfarm Business Productivity

Global Insight: 1.9%
Consensus: 1.8%
Last Actual: 1.8% (Prelim. Q4)

Unit Labor Costs

Global Insight: 2.6%
Consensus: 2.1%
Last Actual: 2.1% (Prelim. Q4)

What to Look For

• Productivity will be revised up slightly, reflecting a reduction in estimated hours-worked.
• Unit labor costs will be revised up, based on an upward revision to hourly compensation.

Implications

Productivity held up surprisingly well in fourth-quarter 2007, as hours-worked were curtailed. While unit labor costs will be revised up to 2.6% growth, unit labor costs in general have been running below inflation. Year-over-year (y/y), unit labor costs will be up just over 1.0% in the fourth quarter. But the main problem on the cost side has been non-labor unit costs, which were pushed up 3.2% y/y by large jumps in energy and crude oil prices.

Wednesday, March 5 – ISM Nonmanufacturing Index (Feb.)

Global Insight: 47.9
Consensus: 48.0
Last Actual: 44.6 (Jan.)

What to Look For

• An upward bounce in the index, but it will remain below 50, signaling further contraction in the services sector.

Implications

Freight activity, which declined in December, picked up slightly in January, which is a slight positive. But year-over-year growth in chain-store sales wilted in January, and manufacturing activity continued to deteriorate in February, which does not auger well for transportation services demand in February, or March for that matter. Financial services were still under stress in February, but perhaps not as much stress as in January. Overall, we expect a mild technical bounce, but the index will still track well below 50, signaling further contraction in the services sector during February.

Friday, March 7 – Employment (Feb.)

Nonfarm Payrolls
Global Insight: -20,000
Consensus: +30,000
Last Actual: -17,000 (Jan.)

Unemployment Rate

Global Insight: 5.0%
Consensus: 5.0%
Last Actual: 4.9% (Jan.)

Average Hourly Earnings

Global Insight: +0.3%
Consensus: +0.3%
Last Actual: +0.2% (Jan.)

What to Look For

• Payroll employment to slide downwards by 20,000.
• Unemployment rate to tick upwards to 5.0%.

Implications

The news on the labor market continues to deteriorate, as initial unemployment insurance claims are rising towards recession territory. We expect another bleak employment report for February, with payrolls declining by 20,000 and the unemployment rate resuming its upward trend, from 4.9% to 5.0%.