This week is a busy one for the macroeconomy as markets and analysts will receive some of the first major indicators of how the nation is faring at the start of the third quarter. 

Expectations are high. “The US recession has ended, and the economy has embarked on a new path of recovery path in 3Q-2009,” said analyst John Herrmann from Herrmann Forecasting, in his weekly forecasting note.

Other analysts are similarly optimistic, particularly since the Q2 GDP report from Friday came in better than expected, indicating that the economy dropped “only” 1% between April and June. 

Moreover, revisions showed that inventories were slashed at a quicker rate than previously thought, which gives some hope that businesses will have to stock up more rapidly once the economy recovers.

Monday begins with a bang as the ISM manufacturing index is released half an hour into the open, and the week closes with the Employment Situation survey, a report that will have all the pundits talking on the Sunday morning news shows, especially if the unemployment rate inches closer to double-digits from the current 9.5% rate.

Key Releases This Week:


10:00 ―  The first nationwide look at manufacturing in the third quarter is expected to show the economy stabilizing, even though the manufacturing sector will remain in recession. Analysts expect the closely watched ISM Manufacturing Index to inch up for the seventh straight month, this time from 44.8 to 46.5, just 3.5 points shy of the 50-level indicating growth. 

“That’s not a huge gain, but it would be symbolically important because the 46 level is consistent with zero GDP growth,” noted economist Ian Shepherdson from HFE. “In other words, the survey is about to signal the end of the economic contraction.”

Special attention should paid to the New Orders component, which looks forward to the coming months, and the Employment component, which could anticipate the official numbers coming out Friday.

10:00Construction Spending is set to fall a half-percentage point in June following a 0.9% drop in May, as spending on residential properties continues to struggle owing to excess overhang.

Analysts at IHS Global Insight forecast that spending will be flat overall, but the details will tell two different stories. “Single-family housing starts increased 7.5%, 5.9%, and 14.4% in April, May, and June respectively,” they said in a client note. “These increases imply that spending on single-family construction in June increased for the first time in 40 months. But multi-family construction, which plunged 10% in May, should plunge again in June.”


8:30 ― Last month, the Personal Income & Spending report showed a huge 1.4% advance in income due to a temporary boost from the stimulus package, but most of that is expected to be wiped away in the report for June. Analysts expect income to fall 1.1% in the month, while consumer spending is expected to repeat its +0.3% performance.

“As the economy and job market remain weak, companies continue to implement unpaid furloughs, reduced work weeks and other measures that effectively reduce employee compensations,” add the economics team at BBVA. “Nevertheless, consumption is forecasted to increase modestly due to the increase in income in the previous months and prospects of additional stabilization in the economy.“

10:00 ― The NAR’s Pending Home Sales Index is a forecasting tool of existing home sales, which looks at signed contracts for home sales yet to be finalized. In June the index is expected to climb 0.6%, following a 0.7% gain in May and giving further confirmation that stabilization is taking hold in the real estate market.

“Amid renewed demand for existing homes due to favorable home prices and increasing affordability, pending home sales are expected to increase for the fifth consecutive month,” note analysts at BBVA. “An increase would indicate that sales of existing homes would rise further in the upcoming months, which could, in turn, further slow the decline in home prices and decrease inventory levels.” 


8:15 ― The ADP Private Employment report has had a rough time keeping in line with the official employment report that usually comes out two days later, but analysts always look at it and often change their forecasts based on its results. After reporting a loss of 473k jobs in June -- an unexpectedly steep decline that was in line with the official stats -- the ADP report is expected to see 335k private jobs vanish in July.

10:00 ― Even though the ISM Non-Manufacturing Index reports on the services, financial, and construction industries, which together make up more than two-thirds of the economy, it receives less attention than its cousin index released two days earlier. But with a median forecast at 48.0, expectations are higher for this index, and if it breaks past the 50 barrier then the report could garner more attention than usual.


8:30 ― Last week’s Jobless Claims report was taken as good news by markets as the tally of continuing claims fell 54k in the week ended July 18 to 6.197 million, the lowest since April 11. However, initial claims jumped 25k to 584k for the week ending July 25, and a tally of those receiving first time-, continuing-, and emergency-benefits was still at a record high.

Taken together, the figures have yet to signal that job creation is lowering the number of claims. But seasonal adjustment issues are said to be out of the picture now, so if analysts are right in forecasting initial claims to come in at 575k in the final week of July, it would at least point unambiguously to less severe job destruction.


8:30 ― The most closely watched indicator each month, the Employment Situation report, will show jobs escaping from the economy for the 18th consecutive month in July. 

“Since the start of recession, the labor market has lost nearly 6.5 million jobs and we believe that figure may rise as high as 8 million by the end of the labor market cycle,” said Ellen Zentner, senior economist at BTMU. “But the good news is that the pace of job loss has been slowing since January and the unemployment rate, though still on an upward trend, is experiencing smaller monthly increases.”

The median forecast is that 300,000 jobs were lost in July, compared with 467,000 in June. As usual, the range of predictions is wide, from -190k to -375k, but it’s hopeful that all forecasters believe in substantial improvement from June. 

The unemployment rate, also published in this report, is expected to climb two-tenths higher to 9.7%. No economists believe it will hit 10% this month, but they’ve been wrong in the past, and a double-digit rate would likely shake markets that are otherwise optimistic about recovery.

Other Events of Interest...

Monday: 9:00 - 3rd Quarter Treasury Borrowing Requirements

Tuesday: 9:30 - Fed Governor Tarullo and FDIC Chairman Bair testify on Bank Supervision before Senate Banking Committee

Wednesday: 7:00 - MBA Mortgage Application Survey, 9:00 - 3rd Quarter Treasury Refunding Announcement, 9:30 - Senate Banking  hearing on "Examining Proposals to Enhance the Regulation of Credit Rating Agencies", 11:00 - 3 yr, 10 yr, 30 yr Treasury auction announcement

Thursday: 3:00 Fed MBS Purchase Program