Vital Signs: More Hesitant Hiring?

The July employment report should shed light on the pace of economic growth. Also on tap: updates on personal income and spending, construction outlays and factory orders, and more

Are employers really getting more cautious about adding workers? The employment report for July will help to answer that question. The past three job reports have shown lackluster gains in non-farm payrolls. Investors will try to divine from the July data, due out on Aug. 4, whether high energy prices, geopolitical events, and uncertainty about a second-half economic slowdown have companies feeling more hesitant about hiring.

The results will also be analyzed for potential implications on monetary policy ahead of the Federal Reserve's Aug. 8 policy meeting. Another soft number would appear to validate the Fed's view that the economy and the labor market are settling into a slower pace of growth. A surprise in hiring exceeding the consensus view of 146,000 new jobs in July could lead investors to think the Fed still has a little more work to do.

The Institute for Supply Management releases its national activity reports this coming week. Both the July manufacturing and non-manufacturing surveys will be used to gauge current economic activity as well as to get a last minute reading on the labor market. Both employment indexes fell in June, with more manufacturers reporting job cuts than more hiring. However, the June employment data did show that manufacturers added 15,000 workers.

Two other reports will likely garner considerable attention. After another round of soft home sales figures, economists will be taking a close look at the June construction spending numbers to see if, and by how much, spending in the residential area deteriorated.

The June personal income report will not only provide fresh numbers on consumer spending and income, but also the Fed's preferred measure of inflation: the personal consumption expenditures price index. In May, the headline price index was up 3.3% from a year ago. The more closely-watched core index, which excludes food and energy, was up 2.1%. That level is just outside the Fed's "comfort level" of 1% to 2%. The Fed believes the yearly pace of this price index will continue to tick higher this year before falling in 2007 in response to softer economic growth. Of course, an early test for the Fed's economic outlook will be the July employment figures.

Here's the weekly economic calendar, from Action Economics.

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