Vital Signs: A Fragile, But Growing Economy

On deck: ISM indexes for both manufacturing and nonmanufacturing, construction spending, car sales, and the employment report

What recession? It's a question gaining more attention with every new month's worth of economic data. Through April, at least, reports plainly show a fragile economy but one that's still growing, albeit feebly.

Since the credit-market blowup began last August, consumers have been pulling back on their spending but not as sharply as had been feared, and the same is true for business outlays and hiring. Overall, first-quarter growth in real gross domestic product was revised upward to show a gain of 0.9%, following the fourth-quarter's 0.6% rise. Importantly, the advance reflected a bigger contribution from overall demand, especially net foreign trade, and less from inventories. That sounder mix puts the economy on a little firmer footing heading into the second quarter, just as households begin to collect their tax rebates.

Consumers will continue to provide the litmus test for the economy's resilience, and this week's economic data offers another key reading: the May employment report due on Friday. So far, job losses have been mild, so income growth has slowed, but not sharply. Economists expect nonfarm payrolls to have declined by 50,000 in May, but that projection and other recent losses have been far less than the typical early-recession experience. If the May expectation is on the mark, payrolls will have fallen by about 300,000 since their peak in December, compared to losses of more than twice that size during the first five months of the last two recessions.

There's good reason to expect job losses to remain relatively mild. During the past two months, the four-week average of new claims for unemployment insurance has ranged between 367,000 and 377,000. That's an elevated level but still below the readings of 400,000 or greater typical in past recessions. Other Labor Dept. data show that businesses are not firing workers at a faster rate, but they have significantly slowed their rate of hiring.

Manufacturing continues to be a major source of job losses, and this week's data will not only update factory payrolls, but on Monday the Institute for Supply Management will report on overall manufacturing activity in May. And on Wednesday, the ISM will release its May survey of nonmanufacturing activity, mostly services. To date, the service sector has been a chief support under nonfarm payrolls as well as overall GDP growth.

Rounding out the week's economic data will be April reports on construction spending and factory orders. Based on the continued plunge in housing starts, the construction data are expected to show another big drop in residential outlays at a rate consistent with another subtraction of about one percentage point from second-quarter GDP growth. The construction numbers and those for factory orders will also give an indication of the second-quarter strength in plant and equipment outlays by businesses. Also, look for April data on consumer credit, along with a May update on car sales.

Finally, weekly retail reports will garner more than the usual attention, since they will provide the first evidence of the impact of the tax rebates, which began arriving at the end of April.

Here's the weekly economic calendar from Action Economics.

Top Reports
Reports Date Time For Median Estimate Last Period
ISM Index (manufacturing) Monday, June 2 10 a.m. May 49.0 48.6
Construction Spending Monday, June 2 10 a.m. April –0.6% –1.1%
Factory Orders Tuesday, June 3 10 a.m. April –0.5% 1.3%
Domestic Auto Sales (millions) Tuesday, June 3 Afternoon May 5.0 4.7
Domestic Light Truck Sales (millions) Tuesday, June 3 Afternoon May 6.0 5.9
Nonfarm Productivity (revised) Wednesday, June 4 8:30 a.m. Q1 2.5% 2.2%
Nonfarm Unit Labor Costs (revised) Wednesday, June 4 8:30 a.m. Q1 1.9% 2.2%
ISM Index (nonmanufacturing) Wednesday, June 4 10 a.m. May 51.0 52.0
Nonfarm Payrolls (thousands) Friday, June 6 8:30 a.m. May –50.0 –20.0
Manufacturing Payrolls (thousands) Friday, June 6 8:30 a.m. May –38.0 –46.0
Unemployment Rate Friday, June 6 8:30 a.m. May 5.1% 5.0%
Average Hourly Earnings Friday, June 6 8:30 a.m. May 0.3% 0.1%
Average Workweek (hours) Friday, June 6 8:30 a.m. May 33.7 33.7
Wholesale Trade Sales Friday, June 6 10 a.m. April 0.5% 1.6%
Consumer Installment Credit ($billions) Friday, June 6 3 p.m. April 6.5 15.3
Other Reports and Events
Reports Date Time For
SPEECH: Atlanta Fed President Lockhart Monday, June 2 12:20 p.m.
ICSC-UBS Store Sales Tuesday, June 3 7:45 a.m. May 25-31
Johnson Redbook Weekly Store Sales Tuesday, June 3 8:55 a.m. May 25-31
ADP Employment Wednesday, June 4 8:15 a.m. May
SPEECH: Atlanta Fed President Lockhart Wednesday, June 4 8:30 p.m.
Mortgage Applications Wednesday, June 4 7 a.m. May 25-31
EARNINGS: Ciena Thursday, June 5  
EARNINGS: National Semiconductor Thursday, June 5  
Initial Unemployment Claims Thursday, June 5 8:30 a.m. May 25-31
Federal Reserve Flow of Funds Report Thursday, June 5 Noon Q1
Chain Store Sales (individual companies) Thursday, June 5  
SPEECH: Chicago Fed President Evans Friday, June 6 11:15 p.m.
SPEECH: St. Louis Fed President Bullard Friday, June 6 1:30 p.m.
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