Key U.S. Data Releases and Events

In other reports, we expect payrolls to decline by a moderate 45,000 in July, which is less than the 62,000 reduction in June. The economy is still moving ahead, and employment market conditions are not all that great, but not so bad in view of the extended period of below-potential growth that we have seen since the third quarter of 2007. The ISM index is expected to dip in July as the automotive sector continues to scale back light truck production. June construction spending is expected to add one more month to a long string of declines, but motor vehicle (unit) sales are expected to perk up a little on strong sales of compact and sub-compact passenger cars.

KEY U.S. DATA RELEASES THIS WEEK

Thursday, July 31 – Employment Cost Index (Q2)

Global Insight: +0.8%
Consensus: +0.7%
Last Actual: +0.7% (Q1)

What to Look For

• Overall employment costs to rise by 0.8%.

Implications

We expect employment costs to rise 0.8% during the second quarter, after rising 0.7% during the first three months of 2008. Labor markets are still softening, but nominal compensation continues to be hammered by rapidly rising consumer price inflation. The slight acceleration from the first quarter reflects a small adjustment for the rising cost of living. Small indeed: our forecast implies a 2.8% drop in compensation adjusted for inflation. Bad for workers, but good for the Federal Reserve as it tries to contain core inflation in a hazardous policy environment.

Thursday, July 31 – Real Gross Domestic Product (Advance Q2)

Global Insight: +2.3%
Consensus: +2.0%
Last Actual: +1.0% (Final Q1)

What to Look For

• Overall real GDP is expected to advance by 2.3%.
• Most of the growth is expected to come from net exports.

Implications

Real GDP growth gets a major kick from net exports in the second quarter; we expect them to contribute close to two full percentage points to growth. Moderate consumption and investment gains—which have been assisted by the fiscal-stimulus payments and bonus depreciation, respectively—are expected to counterbalance the drag from housing. The solid 2.3% growth in real GDP is in stark contrast to the 3.7% drop in manufacturing output and the 3.1% fall in total industrial production; a gap of almost 6 percentage points between GDP and production growth rates has happened before (2001 and 2003), but it is rare and causes us concern that inventories (for which there is no timely data) may fall sharply in June. Growth is being driven almost entirely by net exports, but that must be viewed as godsend in view of a weak domestic economy. Moreover, the positive impulses from net exports are boosting productivity and keeping a lid on unit labor costs.

Friday, August 1 – Employment Report (Jul.)

Nonfarm Payrolls
Global Insight: -45,000
Consensus: -75,000
Last Actual: -62,000 (Jun.)

Unemployment Rate
Global Insight: 5.5%
Consensus: 5.6%
Last Actual: 5.5% (Jun.)

Average Hourly Earnings
Global Insight: +0.3%
Consensus: +0.3%
Last Actual: +0.3% (Jun.)

What to Look For

• Payrolls to decline by 45,000.
• Unemployment rate to be steady, at 5.5%

Implications

Manufacturing and construction almost certainly saw reductions, with larger declines in finance expected, while food services are unlikely to remain above water for much longer. Average losses of 82,000 jobs in the first quarter and 64,000 jobs in the second quarter almost make "only" 45,000 job losses for July look good, but third-quarter declines will be cushioned to some extent by the lagged impact of the economic-stimulus payments on spending. The unemployment rate was likely unchanged in July, at 5.5%.

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

Global Insight: 48.7
Consensus: 49.2
Last Actual: 50.2 (Jun.)

What to Look For

• Overall index to decline by about 1.5 points, to 48.7.

Implications

The ISM-manufacturing index should retreat back under 50 once again, after a brief foray above that in June. Part of the improvement last month may have been due to the stimulus payments and the end of the American Axle strike. Export orders—which have been vital in mitigating the economy's slump in the second half—are still expected to ring in above the 55 level, suggesting that demand in overseas markets remains strong, albeit not as strong as we saw in the preceding three months.

Friday, August 1 – Construction Spending (Jun.)

Construction Put in Place
Global Insight: -0.3%
Consensus: -0.3%
Last Actual: -0.4% (May)

Construction Excl. Residential Improvements
Global Insight: -0.4%
Last Actual: -0.5% (May)

What to Look For

• Overall construction spending to be down by 0.3%.

Implications

We expect June's construction numbers to be similar to May's. Private nonresidential, multiple-family, and public construction will all post small gains. But these will be offset by another 3%-plus drop in single-family construction. For June, construction spending likely fell 0.3%; excluding improvements, the drop will be 0.4%.

Friday, August 1– Motor Vehicle Sales (Jul.)

Global Insight: 13.8 Mil.
Consensus: 13.7 Mil.
Last Actual: 13.6 Mil. (Jun.)

What to Look For

• Sales to remain below 14.0-million units (annual rate).

Implications

The same factors that pulled light-vehicle sales down to 13.6 million in June will continue to conspire against the marketplace. A cautious consumer will continue to refrain from spending on big-ticket items, while low inventory levels on hot-selling subcompact and compact passenger cars will restrain any significant recovery in overall sales levels. Overall, sales of light vehicles are tracking well below trend, and further cuts in production of light trucks are expected in the third quarter.