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Key U.S. Data Releases and Events29 May 09Economic reports next week will continue to throw off ambiguous signals on the state of the economy. The GM bankruptcy filing is now viewed as inevitable on June 1, and this process will probably raise more questions than it answers. Economic reports next week will continue to throw off ambiguous signals on the state of the economy. Real consumer spending is expected to have declined in April, while May motor vehicle sales are forecasted to slip back down to near 9-million units. Overall consumer spending remains dormant, as personal income remains under downward pressure. With respect to activity indicators, the May ISM manufacturing index should see a small improvement, but the companion index for services is expected to pull back slightly, and April construction spending is expected to have fallen yet again. Finally, employment is expected to have declined by a relatively shallow 450,000 in May, but the unemployment rate will bump up further as continuing claims remain on the upswing. The GM bankruptcy filing is now viewed as inevitable on June 1, and this process will probably raise more questions than it answers. Which plants will be shut down, what brands will survive, which dealers will have to fold up operations, and what will be the impact on the supplier base—which is already reeling from recessionary conditions in the industry. Beyond that, the re-tooling of GM will be a formidable and highly risky enterprise. The massive cost of the GM/GMAC bailout keeps rising, with total commitments of $36.3 billion to date, plus another estimated $30-plus billion to capitalize the new GM entity and another expected $4.0 billion to fully recapitalize GMAC. That is a grand total of near $70 billion, rivaling the $70 billion committed to AIG. KEY U.S. DATA RELEASES THIS WEEK Monday, June 1 – Personal Income, Consumption, and Prices (Apr.) Personal Consumption, Nominal
Personal Consumption, Real
Core PCE Price Index
Personal Income
What to Look For
Implications Despite rising transfer payments, such as unemployment insurance benefits, other components of income—dividend income, personal interest income, rental income, and private wage and salary disbursements—are declining. On net, personal income is declining, mainly due to lower employment levels. Thus, the economy is still not yet generating enough income growth to get consumer spending back on track. Indeed, control retail sales (retail sales that feed the consumer spending numbers in the national income accounts) dropped 0.5% in April. In addition to this, light-vehicle sales were down. We are expecting a small increase in nominal spending on services, however. Overall, we expect that consumer spending dropped 0.2% in April. Adjusted for inflation, the drop will also be 0.2% (the consumer price index was flat in April). Core CPI inflation advanced a stronger-than-expected 0.3% in April. Once again, as in March, the story was tobacco prices, which climbed 9.3% higher. The driving force here is the tobacco excise tax hike to fund the expansion of children's health insurance, which took effect on April 1. We are expecting a similar 0.3% increase in the core PCE deflator. Year-on-year, the gain will be 1.9%, edging slightly higher, and dampening deflation fears. Monday, June 1 – Construction Spending (Apr.) Construction Put in Place
Construction Excl. Residential Improvements
What to Look For
Implications Single-family construction dropped 8.5% in March. The April drop will be closer to 5.0%, and going forward, the drops will get progressively smaller, since single-family housing starts are stabilizing. Multi-family construction, on the other hand, is likely to drop at an accelerated pace over the next few months, since multi-family starts have nearly ground to a halt. We are also expecting a drop in private nonresidential construction to offset an increase in public construction. Added up, we project that construction spending fell 0.8% in April. Excluding the volatile improvements category, the drop will also be 0.8%. Monday, June 1 – ISM Manufacturing Index (May)
What to Look For
Implications The May ISM-manufacturing index should creep closer to neutrality at 43.0, up from 40.1 in April. The manufacturing sector is still in retreat, albeit slower retreat. The Empire and Philadelphia readings improved this month but were still below neutral, while the Richmond district reading crept into the black. The Chicago index muddied the picture by backtracking, but on balance we anticipate a further improvement. Tuesday, June 2 – Motor Vehicle Sales (May)
What to Look For
Implications Industry sales levels will remain low in May at 9.0-million units, as the Chrysler bankruptcy and seemingly inevitable GM bankruptcy help to keep the monthly seasonally adjusted selling rate below the 10-million-unit mark for the fifth consecutive month. Wednesday, June 3 – ISM Non-Manufacturing Index (May)
What to Look For
Implications Financial markets continued to improve, with lower risk spreads, reduced volatility, and higher equity valuations. Also, there was a little less downward pressure on services employment. However, final demand remained weak, and freight volumes continued to decline, suggesting weakness in transportation services. Friday, June 5 – Employment Report (May) Nonfarm Payrolls
Unemployment Rate
Average Hourly Earnings
What to Look for
Implications The labor market continues to deteriorate, but less rapidly than before. We expect the rate of job losses to slow again in May, with a decline in payroll employment of 450,000, compared with 539,000 in April. Initial unemployment insurance claims have edged lower in recent weeks. In normal circumstances a decline of 450,000 jobs would be seen as very bad news, but compared with the losses experienced over the winter (which peaked at 741,000 in January) it is a clear improvement. The unemployment rate should show another sharp increase, rising to 9.3% from 8.9%. by Brian Bethune and Nigel Gault
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