Key U.S. Data Releases and Events

Next week's indicators will be few, but telling. We expect that consumer confidence fell back in June under the weight of continuing poor labor market and compensation conditions, while auto sales are likely to take a step back from the pickup in May. Payroll employment is expected to decline by 300,000 in June, which represents a diminution of downward pressure on the demand for labor services, but the unemployment rate is expected to scale higher, which is likely to have negative consequences for consumer confidence.

The June ISM index for manufacturing should move up, but the level is expected to remain below 50; we are still several months away from breaking through into positive territory. Finally, construction spending is expected to have declined in May, as residential construction activity continues to deflate in response to reductions in permit intentions earlier in 2009.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, June 30 – Conference Board Consumer Confidence (Jun.)

• IHS Global Insight: 53.5
• Consensus: 55.1
• Last Actual: 54.9 (May)

What to Look For

• The index is expected to ease by about 1.4 points to 53.5.

Implications

The Conference Board's Consumer Confidence Index is expected to slip from 54.9 in May to 53.5 in June, reflecting growing uncertainty about the pace of economic recovery. Rising gasoline prices and interest rates, together with continuing job losses, are weighing down on consumer sentiment. Households are focused on saving rather than spending, in order to rebuild financial assets and reduce debt burdens.

Wednesday, July 1 – Construction Spending (May)

Construction Put in Place

• IHS Global Insight: -1.0%
• Consensus: -0.6%
• Last Actual: 0.8% (Apr.)

Construction Excl. Residential Improvements

• IHS Global Insight: -1.2%
• Last Actual: -0.3% (Apr.)

What to Look For

• Overall spending to decline by 1.0%.
• Single-family construction to be down by 5.0%.
• Small drops in public and nonresidential construction.

Implications

Single-family construction dropped 6.7% in April, and should slide by at least another 5.0% in May. But going forward, these declines will get smaller, and by the fourth quarter, this category will start growing for the first time since the first quarter of 2006. Multi-family spending, however, is collapsing, and we are expecting that the May decline will be greater than April's 2.6% drop. We are also expecting small drops in public and in nonresidential construction (despite three straight positive monthly readings). Overall, we project that construction spending dropped 1.0%. Excluding improvements, the drop will be 1.2%.

Wednesday, July 1 – ISM Manufacturing Index (Jun.)

• IHS Global Insight: 46.5
• Consensus: 44.5
• Last Actual: 42.8 (May)

What to Look For

• The overall index should move up by 3.7 points to 46.5.

Implications

The gain in the overall index reflects further expected moderation in downward pressure on manufacturing activity. Orders should be in the black, and declines in the manufacturing sector outside of motor vehicles are slowing, albeit erratically. The production index should move toward the 50 mark. Looking forward, the third quarter will likely be the critical turning point for the manufacturing sector, with a very high likelihood that the overall index likely to move over 50 for the first time in many months.

Wednesday, July 1 – Motor Vehicle Sales (Jun.)

• IHS Global Insight: 9.5 Mil.
• Consensus: 9.8 Mil.
• Last Actual: 9.9 Mil. (May)

What to Look For

• June's light-vehicle sales are projected to come in at a seasonally adjusted annual rate of 9.5 million units.

Implications

GM faces the tenuous situation of selling off-run vehicles and reducing inventories in the wake of its bankruptcy. We expect industry incentive levels to ease from record-high levels, and that might take the edge off sales momentum. Moving forward, sales are expected to experience a moderate bounce over the next few months as a result of the "Cash for Clunkers" bill.

Thursday, July 2 – Employment Report (Jun.)

Nonfarm Payrolls

• IHS Global Insight: -300k
• Consensus: -350k
• Last Actual: -345k (May)

Unemployment Rate

• IHS Global Insight: 9.6%
• Consensus: 9.6%
• Last Actual: 9.4% (May)

Average Hourly Earnings

• IHS Global Insight: 0.1%
• Consensus: 0.1%
• Last Actual: 0.1% (May)

What to Look for

• We expect a total payroll decline of 300,000, compared with a 345,000 loss in May.
• The unemployment rate is expected to climb higher, to 9.6%.

Implications

We expect the June employment report to show another easing in the rate of job losses. The improvement should all come in the private sector; we expect to see government jobs declining, as temporary jobs related to the preparations for the 2010 Census begin to disappear. We expect the unemployment rate to rise to 9.6% from 9.4%, creeping ever closer to 10%, but this would be a markedly slower rise in unemployment than in recent months. We expect employment to keep declining, though at a diminishing rate, for the rest of the year, and expect to see the unemployment rate peaking at 10.3% in 2010.