Vital Signs: How Bad Did It Get?

On tap: February employment and national non-manufacturing activity reports, January international trade, the Federal Reserve's Beige Book, and more

Just how soft is the economy? More bad news on housing, subprime lending, and manufacturing, along with remarks by former Federal Reserve Chairman Alan Greenspan that a U.S. economic recession is possible in 2007 and sharp sell offs among global stock markets, have investors feeling jittery about prospects going forward. The recent events will only ratchet up the importance of the Mar. 9 employment report.

After the smaller-than-expected increase in January payrolls of 111,000, a rebound is expected. Stronger hiring in February would go a long way toward reassuring economy watchers that the weakness in housing and manufacturing remains relatively isolated. Another disappointing report would raise concerns that businesses are increasingly nervous about additional fallout from housing and softer economic growth.

Before the Labor Dept. releases its figures Friday, the ADP National Employment Report comes out on Mar. 7. The February ADP report will be the first using an overhauled methodology and a larger sample of companies, both meant to give a better picture of employment trends.

The service sector and exports are two areas that have held up quite well in the face of slower economic growth. The Institute for Supply Management's national non-manufacturing report is expected to show that the service sector remains healthy. That's particularly important when it comes to the labor market. The service sector, particularly in the professional services and health-care industries, is where hiring has remained strong.

The January trade gap should narrow a little. Lower oil prices in January probably helped whittle down the gap. But exports are also expected to grow some more. This remains one of the few bright spots for manufacturers. In the fourth quarter, capital goods exports grew at an annualized rate of 15.9%. Despite the recent turmoil in international stock markets, economic prospects abroad still look good.

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

Economic Reports
Report Date Time For Median Estimate Last Period
ISM (Non-manufacturing) Tuesday, Mar. 6   February 58.0 59.0
Nonfarm Productivity (Revised) Tuesday, Mar. 6   Q4 2.0% 3.0%
Unit Labor Costs (Revised) Tuesday, Mar. 6   Q4 3.0% 1.7%
Factory Orders Tuesday, Mar. 6   January -2.0% 2.4%
Consumer Credit (Billion) Wednesday, Mar. 7   January $5.0 $6.0
Nonfarm Payrolls (Thousands) Friday, Mar. 9   February 120 111
Manufacturing Payrolls (Thousands) Friday, Mar. 9   February -15 -16
Unemployment Rate Friday, Mar. 9   February 4.6% 4.6%
Average Hourly Earnings Friday, Mar. 9   February 0.3% 0.2%
Hours Worked Friday, Mar. 9   February 33.8 33.8
International Trade Balance (Billion) Friday, Mar. 9   January -$59.5 -$61.2
WholesaleTrade Sales Friday, Mar. 9   January 0.0% 1.8%

MEETINGS OF NOTE - Monday, Mar. 5

1 p.m. EST - Federal Reserve Bank of St. Louis President William Poole gives a speech entitled "Inflation, Financial Stability and Economic Growth" in Santiago, Chile.

12 p.m. EST - Chairman of the House Committee on Financial Services Barney Frank gives a luncheon speech entitled "Financial Services Agenda in the U.S. House of Representatives" at the Institute of International Bankers' Annual Washington Conference in Washington, D.C.

2 p.m. EST - Federal Reserve Board Governor Kevin Warsh gives a speech on liquidity at the Institute of International Bankers' Annual Washington Conference in Washington, D.C.


The Institute for Supply Management issues its February report on business activity for the non-manufacturing sector, which is made up mostly of service sector businesses. The consensus view is that the index softened a little. The January index bounced up to 59%, from 56.7% in December, and 58.3% in November. The number of sectors reporting an increase in activity matched the number that said activity decreased.

Even though the headline reading did jump higher in January, the new orders index edged down and the employment reading fell to its lowest level since January 2006. The inventories reading dropped to 47%, from 53.5% in December. The January level below 50% implies a drawdown in stockpiles. The dip is likely related to the decline of housing. The construction sector has been reporting declines in activity over the past several months.

MEETINGS OF NOTE - Tuesday, Mar. 6

U.S. President George W. Bush meets with Jordan's King Abdullah at the White House in Washington, D.C.

1 p.m. EST- Federal Reserve Bank of Philadelphia President Charles Plosser gives a speech entitled "Credibility and Commitment" before the New York Association for Business Economics in New York City.

ICSC-UBS STORE SALES - Tuesday, Mar. 6, 7:45 a.m. EST

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the period ending Mar. 3. Weekly sales for the period ended Feb. 24 rose 0.2%, after edging down 0.1% in the prior week and falling 0.8% in the week ended Feb. 10. The increase from a year ago slowed to 2.2%, from 3.5% in the prior week.

PRODUCTIVITY AND COSTS - Tuesday, Mar. 6, 8:30 a.m. EST

Revised nonfarm productivity growth is expected to be lower than the initial result. Fourth-quarter productivity growth was first reported to have grown at an annualized pace of 3%. But a big downward revision to fourth-quarter economic growth will lead to a smaller level of productivity growth. The revision showed gross domestic product grew at an annualized pace of 2.2%, from 3.5%. In addition, unit labor costs are also expected to be revised up from the originally reported increase of 1.7%.

JOHNSON REDBOOK INDEX - Tuesday, Mar. 6, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the fourth and final fiscal week of February, ended Mar. 3. During the first three fiscal weeks, ended Feb. 24, sales were off 1.2% from the same period in January. For the entire month of January, sales were up 1.7% from December.


Factory orders most likely fell in January. December factory orders grew 2.4% in December, and 1.2% in November, following a 4.5% drop in October. The 7.8% tumble in February durable goods orders points to quite a sizeable drop in overall factory orders for the month. The durable goods report showed a 60.3% plunge in civilian aircraft orders. However, the 6% drop in non-defense capital goods orders outside of aircraft shows that the January decline was broad based. The big decline in durable goods orders gets first-quarter capital investment off to a weak start.

MEETINGS OF NOTE - Wednesday, Mar. 7, 1 p.m. EST

Federal Reserve Bank of Chicago President Michael Moskow discusses the U.S. economy at a luncheon held by the Jewish United Fund in Chicago.

5 p.m. EST - European Union Commissioner for Internal Market and Services Charles McCreevy speaks about trans-Atlantic markets in New York City.

MORTGAGE APPLICATIONS - Wednesday, Mar. 7, 7 a.m. EST

The Mortgage Bankers Association issues its weekly mortgage application volume data for home buying and refinancing activity during the week ending Mar. 2. For the week ended Feb. 23, both the purchase and refi indexes posted small gains. The purchase index was 401.3, from 381.4 in the week ended Feb. 16. The refi index was 1943.5, up from 1921.1 in the week ended Feb. 16.

The four-week moving average for the purchase index eased to 397, from 398.7 in the week ended Feb. 16. The four-week average for the refi index stood at 1959.9, up a notch from 1959.1.

The average 30-year fixed-rate mortgage fell further, to 6.16%, from 6.19% in the week ended Feb. 15.

BEIGE BOOK - Wednesday, Mar. 7, 2 p.m. EDT

The Federal Reserve will release its compilation of regional economic activity, based on survey responses from each of its 12 districts. The Beige Book will come ahead of the two-day monetary policy meeting on Mar. 20-21. Economists surveyed by Action Economics fully expect the Fed will leave interest rates at 5.25% through mid-year. However, investors still believe there is a decent chance of an interest rate cut in the second half of 2007.


Consumers are expected to have accumulated a smaller amount of consumer debt in January. The level of outstanding consumer credit grew by $6 billion in December, following a $13.7 billion jump in November. The December increase was concentrated in non-revolving credit, which rose $5.4 billion. The November increase was concentrated in revolving credit, consisting largely of credit card balances, with a $9.9 billion rise. In 2006, overall consumer credit rose 4.1%, the slowest rise since 1993.

MEETINGS OF NOTE - Thursday, Mar. 8

U.S. President George W. Bush begins a six day trip to Brazil, Uruguay, Colombia, Guatemala and Mexico.

U.S. Treasury Secretary Henry Paulson gives a speech on capital markets in Shanghai.

JOBLESS CLAIMS - Thursday, Mar. 8, 8:30 a.m. EST

Jobless claims grew some more in the week ended Feb. 24, to 338,000. In the prior week, claims were revised down a tick to 331,000, from the originally reported 332,000. The four-week moving average grew to 335,250, from 327,750 in the week ended Feb. 17. Continuing jobless claims for the week ended Feb. 17 jumped to 2.64 million, from 2.51 million in the week ended Feb. 10.

MEETINGS OF NOTE - Friday, Mar. 9

8:30 a.m. EST - Federal Reserve Board Vice Chairman Donald Kohn, Federal Reserve Board Governor Randall Kroszner, Federal Reserve Bank of Minneapolis President Gary Stern, and

Federal Reserve Bank of Richmond President Jeffrey Lacker speak at the U.S. Monetary Policy Forum in Washington D.C.

EMPLOYMENT REPORT - Friday, Mar. 9, 8:30 a.m. EST

Payrolls probably grew by 120,000 jobs in February and the jobless rate likely remained at 4.6% for a second straight month. That's the consensus view of economists surveyed by Action Economics. In January, payrolls rose by 206,000, and December hiring was 196,000.

There may be some downside risk to the February figures if a return to more typical winter weather limited construction activity. During the first half of January, which included the employment report survey period, there was an overall increase in construction payrolls and only a small decline in the residential segment of construction. Some economists believe the warmer weather had a positive influence on construction payrolls.

Elsewhere in the economy, service sector hiring, a recent source of strength in the labor market, slowed in January. Monthly job gains in professional and business services grew by 25,000 workers in January, after a gain of 74,000 in December, and 64,000 in November. Health care payrolls grew by 18,400, following a December rise of 42,600, and a November increase of 27,400.

Average hourly wages are still growing at a solid clip. In January, the monthly gain was 0.2% and the increase from a year ago was 4%. As inflation pressures show signs of subsiding and wage growth remains solid, real wage gains will remain solid.

INTERNATIONAL TRADE - Friday, Mar. 9, 8:30 a.m. EST

The U.S. trade deficit of goods and services probably narrowed some in January. Exports are expected to have grown a little during the period, while imports likely edged down. One reason for expectations of a smaller level of imports is lower oil prices. Crude oil prices drifted lower during the month. In December, the trade gap widened to $61.2 billion, from $58.1 billion in November.

U.S. export growth remains healthy. In the fourth quarter, exports of capital goods grew at an annualized pace of 15.9%, while consumer goods exports grew 13.9%. As long as global economic growth remains healthy, U.S. export growth should remain solid.


Wholesale sales are expected to have held steady in January. Sales jumped 1.8% in December, after a brisk 0.9% gain in November, after contractions in each of the prior two months. The big sales jump in December led to a 0.5% drawdown in wholesalers' inventories.

However, a big component in the December results was petroleum. Higher oil prices contributed to the nominal 5.6% jump in sales and a 6.3% fall in inventories. Outside of petroleum, sales grew at a solid pace among within computers, autos, and hardware. Inventory declines were pretty broad based in the durable goods area.

Earnings Calendar
Day Companies
Monday ADC
Tuesday Brown-Forman, Payless ShoeSource
Wednesday Martek Biosciences, Mens Wearhouse, Michael's Stores
Thursday Costco Wholesale, National Semiconductor
Friday Big Lots
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