Key Data Releases for Week of 1 May

Monday, 1 May – PERSONAL INCOME AND CONSUMPTION (March)

What To Look For

• March hourly wages, and aggregate hours increased 0.2%. This should translate to a 0.3%-0.4% increase in wage and salaries.
• Overall, we also expect personal income to come in at 0.4% for March.
• Although sales of light vehicles held steady at 16.55 million units in March, automotive dealers realized a 1.6% increase in sales dollars on what appears to be a combination of a better mix and/or better margins.
• This increase, in addition to increased spending on gasoline will boost the consumer spending numbers to 0.5% in March.
• Real consumer spending rose by 0.2%

Implications

Real personal consumption grew moderately in the month of March, closing out a very strong quarter for real consumption, which moved up by an estimated 5.5% Moving forward into the second quarter, however, we are expecting a deceleration in the pace of real consumption growth to about 3.1%, as consumer sentiment has come under downward pressure early in the quarter due to the recent spike in gasoline prices.

Tuesday, 2 May – MOTOR VEHICLE SALES (April)

What To Look For

• Motor vehicle sales are expected to be 16.7 million in April.
• Ford and Chrysler still have significant incentive programs which will support sales and maintain the pace of the last two months.
• GM's Value Price strategy limits the upside potential in the marketplace.

Implications

Motor vehicle sales, after a strong start to the year, are moderating. Moves by producers to "value pricing" and less discounting, are expected to keep the sales rate hovering in the range of 16.5 million, on average, in the second quarter of 2006. This will contribute to a fairly sharp slowdown in durable goods spending in the second quarter, after a blow-out gain of 20.6% in the first quarter.

Wednesday, 3 May – ISM NON-MANUFACTURING SURVEY (April)

What To Look For

• The ISM services index is expected to decline by about 1.5 percentage points, to 59.0%, in the month of April 2006.
• Non-financial services industries continue to report strong activity levels, including transportation, health care services, professional and technical services, travel, and tourism.
• Offsetting this, financial services are expected to decelerate with many banks reporting lower consumer and mortgage loan demand.
• Real estate services are also expected to report a reduction in momentum.

Implications

The services sector continues to expand at very healthy rates, although there are soft patches in consumer loans, mortgages and real estate services. Services expanded by 2.8% in the first quarter, and we are expecting a mild acceleration, to about 3.2% in the second quarter.

Thursday, 4 May – NONFARM PRODUCTIVITY (Q1, Preliminary)

What To Look For

• According to the Bureau of Economic Analysis, nonfarm business gross value-added increased 5.8% in the first quarter.
• We project that hours increased 3.3%.
• Overall, we project that productivity grew 2.5% in the first quarter of 2006.

Implications

The expected jump in productivity in the first quarter will be welcome news for corporate earnings, and the sustainability of the strong, positive business investment cycle. It will also keep unit labor costs in check, which will support the Federal Reserve's strategy to bring the current monetary tightening cycle to a conclusion in the not-too-distant future.

Friday, 6 May – EMPLOYMENT (April)

What To Look For

• Initial unemployment insurance claims remain low (around the 300,000 mark) and consumer sentiment surveys suggest that consumers perceive a robust jobs market.
• Therefore, the April employment report is likely to show another solid increase in nonfarm payrolls -- we expect 200,000 new jobs.
• We expect the unemployment rate to hold steady at 4.7%, and a bit more evidence of wage pressures, with hourly earnings ticking up by 0.3% this month instead of the 0.2% that we saw in March.

Implications

A solid employment report in April suggests that good overall employment conditions will continue in the second quarter. This will help prop up consumer sentiment, especially sentiment about current conditions, and propel real consumption ahead at a reasonably good rate of about 3.1% in the second quarter.