Vital Signs: Jobs, Wages Fuel Consumer Spending

On tap: April employment report and national business activity reports, March personal income and spending, first-quarter productivity

Gasoline prices have taken off, grocery bills are getting fatter, and the housing market is still in tatters. Yet, Americans have overcome all of this and keep spending. The key to the resilient consumer has been the labor market. Job and wage growth have held up despite slower economic growth and growing pressures on profit margins. And judging by current conditions, a strong labor market remains the key for consumers and the economy at large.

The markets will get an initial take on the labor market with the ADP National Employment Report on May 2. But the biggest report of the week will certainly be the Labor Dept.'s April employment figures. After solid March results, hiring is forecast to have slowed. Concerns among some economists that the seasonally adjusted level of employment in residential construction are set to fall significantly may be one reason for the more subdued April forecast.

Besides construction payrolls, the service sector hiring bears watching. The labor market has been strongest in the service industries, particularly in leisure and hospitality, information services, and health care.

But it's not just more jobs that have helped keep consumers shopping. Incomes are also growing at a good clip. February personal income rose 0.6% from January and 5.3% on a yearly basis. Another solid 0.5% gain is expected for March. In addition, the April jobs data will probably show that average hourly wages are still rising faster than inflation.

Continued strength in the labor market and in consumer spending is certainly vital. But for the economy to shift into a higher gear, conditions in other sectors must improve. Certainly, the first-quarter data on labor productivity will raise more concerns that profit margins are getting squeezed.

But better news from manufacturing offers some hope. March factory orders should post a nice gain following very positive durable goods results. The Institute for Supply Management's April factory activity index is forecast to have improved as well. Good results from these reports would not just be good news for manufacturers, it could also be an indication that business investment and, therefore the economy at large, are set to pick back up.

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

Economic Reports
Report Date Time For Median Estimate Last Period
Personal Income Monday, Apr. 30 8:30 a.m. March 0.5% 0.6%
Personal Consumption Expenditures Monday, Apr. 30 8:30 a.m. March 0.5% 0.6%
Chicago PMI Monday, Apr. 30 10 a.m. April 55.0 61.7
Construction Spending Monday, Apr. 30 8:30 a.m. March 0.2% 0.3%
ISM (manufacturing) Tuesday, May 1 10 a.m. April 51.2 50.9
Factory Orders Wednesday, May 2 10 a.m. March 1.0% 1.0%
Nonfarm Productivity (preliminary) Thursday, May 3 8:30 a.m. Q1 1.3% 1.6%
Unit Labor Costs (preliminary) Thursday, May 3 8:30 a.m. Q1 3.9% 6.6%
ISM (non-manufacturing) Thursday, May 3 10 a.m. April 53.4 52.4
Nonfarm Payrolls (thousands) Friday, May 4 8:30 a.m. April 123 180
Manufacturing Payrolls (thousands) Friday, May 4 8:30 a.m. April -10 -16
Unemployment Rate Friday, May 4 8:30 a.m. April 4.5% 4.4%
Average Hourly Earnings Friday, May 4 8:30 a.m. April 0.3% 0.3%
Hours Worked Friday, May 4 8:30 a.m. April 33.9 33.9


Monday, Apr. 30 - U.S. President George W. Bush hosts the annual U.S.-EU Summit and meets with German Chancellor and European Council President Angela Merkel, as well as European Commission President Jose Manuel Barroso at the White House in Washington, D.C.

8 a.m. EDT - Brazilian Central Bank President Henrique Meirelles gives the keynote speech at a breakfast meeting at the Brazilian-American Chamber of Commerce in New York City.


Personal income is expected to keep climbing. Overall, income growth was up 0.6% in February, after a 1% jump in January. Through February, personal income is on track to grow at an annualized pace of 7.1% in the first quarter. That would be the strongest gain in a year if it holds up. The solid pace of income growth is providing consumers with the resources to overcome drags from housing and high energy prices.

Consumer spending probably remained strong despite a decline in March auto sales. In February, spending climbed 0.6%, after increases of 0.5% in January and 0.7% in December. After adjusting for changes in prices, consumer spending is on track to grow at an annualized rate of better than 3%. Once again, consumer spending will be the main driver of economic growth in the first quarter.

Another key piece of information in this report is the personal consumption expenditures (PCE) price index. The headline index registered a 0.4% monthly gain in February, the largest in ten months, and was up 2.3% from a year ago. Another large monthly increase is likely in March on higher energy prices.

Excluding food and energy, prices rose 0.3% in February, and 2.4% from a year ago. This measure of core inflation is preferred by the Federal Reserve. It has been running above the 1% to 2% comfort level expressed by members of the central bank for a while, with the core rate last below 2% in March of 2004.

CONSTRUCTION SPENDING - Monday, Apr. 30, 10 a.m. EDT

Construction outlays are expected to have climbed a little in March. In February, spending rebounded with a 0.3% gain, after a January drop of 0.7%. Private residential outlays continue to tumble, with a 1% fall in February. In the past year, residential spending has dropped 15.1%.

The tumble in housing has been partially offset by gains in nonresidential building. Private nonresidential construction grew 2.3% In February and is picking up steam in the first quarter after a soft fourth quarter. Growth in nonresidential outlays slowed to an annualized rate of 4.2% in the fourth quarter, but is presently running at more than double that pace in the first quarter. Government spending on construction projects is also helping to make up for the decline in the residential sector. Public construction was up 0.4% in February.


The Chicago-area purchasing managers' April index of industrial activity probably backed off the surprisingly strong March results. The index in March leapt to 61.7%, from 47.9% in February and 48.8% in January. The March reading was the highest in nearly two years.

Other figures were also strong in the March report. The production index surged to 64.9%, which was the best monthly result since August of 1996. And the new orders index posted the biggest monthly improvement from 48.7% in February to 72.2% in March. Curiously, the employment index fell to 45%, from 50.6%. The March level below 50% indicates that more manufacturers than not trimmed payrolls despite the resurgence in demand.


Tuesday, May 1, 11 a.m. EDT - Federal Reserve Board Chairman Ben Bernanke gives a keynote address at the Montana Economic Development Summit in Butte, Mont.

ICSC-UBS STORE SALES - Tuesday, May 1, 7:45 a.m. EDT

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ended Apr. 28. Sales fell another 0.3% for the week ended Apr. 21, after dropping 0.6% in the week ended Apr. 14. The yearly pace of growth dropped off to 2.3%, from 2.1% for the week ended Apr. 14.

JOHNSON REDBOOK INDEX - Tuesday, May 1, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for third fiscal week of April, ended Apr. 28. Sales through the first fiscal two fiscal weeks ended Apr. 21 were off 4.2% compared to the same period in March. For the entire month of March, sales were up 0.9% compared to the same period in February.

VEHICLE SALES - Tuesday, May 1

Vehicle sales are expected to keep sliding. Sales are forecast by to have fallen to an annual pace of 15.6 million vehicles. March sales fell to a rate of 16.3 million, from 16.6 million in February. If sales fall in line with the April forecast, it would be the weakest month since the hurricane affected results in October of 2005.

ISM SURVEY - Tuesday, May 1, 10 a.m. EDT

The Institute for Supply Management's April factory activity index probably improved a little. The March index retreated to 50.9%, from 52.3% in February. Some March manufacturing data bode well for an April improvement in the ISM index. Manufacturing output grew 0.7%, while durable goods orders jumped 3.4%. These reports helped offset some downbeat results among recent regional factory activity surveys.

The March ISM results showed a deceleration in growth among new orders and production. But the employment and orders backlog indexes fell below the 50% level -- implying job cuts and an outright decline in the level of unfilled orders. A continuing bright spot is orders from abroad, as the exports index grew to 55% from 54%. This shows the recent divergence between domestic demand and the continued economic strength abroad.


Wednesday, May 2, 9:30 a.m. EDT - Federal Reserve Bank of St. Louis President William Poole speaks at the St. Louis Fed's conference on community development finance in St. Louis.

11 a.m. EDT - U.S. Treasury Secretary Henry Paulson addresses a conference entitled "The China Balance Sheet in 2007 and Beyond" held by the Peterson Institute for International Economics in Washington, D.C.

MORTGAGE APPLICATIONS - Wednesday, May 2, 7 a.m. EDT

The Mortgage Bankers Association releases its mortgage application volume data for home buying and refinancing activity for the week ending Apr. 27. In the week ended Apr. 20, the purchase index bounced to 411, after sliding to 396.5, from 413.8 in the week ended Apr. 6. The refi index rose for the first time in six weeks. The index for the week ended Apr. 27 was 2081.6, from 2008.4 in the prior week.

The four-week moving average for the purchase index was 406.1 for a second straight week, after easing to 409.6 in the week ended Apr. 6. The four-week average for the refi index declined to 2050.8, from 2079.9 in the week ended Apr. 13. The average 30-year fixed-rate mortgage tumbled to 6.13% from 6.22% in the previous period.


Factory orders very likely swelled in March. Already, durable goods orders were reported to have jumped 3.4% in March on broad based gains. Orders for machinery, metals, and electrical equipment all increased solidly in March. Capital goods orders minus defense equipment and the volatile civilian aircraft category were up 4.7%. This improvement in capital goods is a positive sign for business investment.

In February, factory orders grew 1%, but only because civilian aircraft orders soared 88.4%. Strip away nondefense aircraft and manufacturing orders were down 1.6% in February. After some weakness, the latest numbers offer some hope that manufacturing activity is on the upswing.

JOBLESS CLAIMS - Thursday, May 3, 8:30 a.m. EDT

Jobless claims for the week ended Apr. 21 tumbled to 321,000. In the prior week, claims rose to an upwardly revised 341,000, from the originally reported 339,000. The four-week moving average grew to 332,000, from 329,250 in the week ended Apr. 14. Continuing jobless claims for the week ended Apr. 14 rose to 2.59 million, from 2.53 million. The level of continuing claims has picked up to a yearly increase of 5.7%, the biggest rise since October of 2002.

PRODUCTIVITY AND COSTS - Thursday, May 3, 8:30 a.m. EDT

Nonfarm productivity growth probably slowed in the first quarter, after improving a little in the fourth quarter. The consensus estimate among economists queried by Action Economics is for an annualized rise of 1.3%. Fourth-quarter productivity growth was 1.6%. Productivity growth was 1.6% for the entire year of 2006, the first year of sub 2% growth since 1997.

Another key number for the markets is unit labor costs. The annualized rise in the first quarter was likely 3.9%. That would be smaller than the 6.6% jump in the fourth quarter, but still a pretty strong increase. For the full year of 2006, unit labor costs rose 3.2%, the biggest rise since a 4.2% rise in 2000. Rising unit labor costs, easing productivity growth, and slower economic growth in the U.S. are all putting downward pressure on corporate profit margins.


The Institute for Supply Management releases its April report on non-manufacturing business activity, made up mostly of service sector operations. A small rebound is expected after a decline in March. The March reading was 52.4%, from 54.3% in February, and 59% in January. In fact, the March level was the lowest in four years. On a positive note, 10 industries reported growth in March, vs. four that showed a decrease in activity.

Among the other indexes, new orders and employment showed smaller gains in orders and payrolls. While demand seemed to ease, inventories piled up at a quicker pace with a March reading of 52%, from 50.5%.


Friday, May 4, 9:45 a.m. EDT - Federal Reserve Bank of New York President Timothy Geithner speaks about the changing global economy at the Financial Markets Association World Congress in Montreal.

11:20 a.m. EDT - Federal Reserve Bank of Kansas City President Thomas Hoenig speaks at a conference in Santa Fe, N.M.

EMPLOYMENT REPORT - Friday, May 4, 8:30 a.m. EDT

Payrolls probably rose by 123,000 in April. That's the median estimate among economists queried by Action Economics. In March, 180,000 workers were hired. The average monthly increase in the first quarter of 2007 was 170,000, down a little from the 189,000 monthly average gains in 2006.

Going forward, construction employment will attract a lot of attention. With the spring and summer building period getting underway, some economists believe that weaker residential construction activity will result in smaller than average hiring. If so, it could appear as large declines on a seasonally adjusted basis as actual hiring falls short of seasonal trends. If this happens, it would make overall hiring appear weak and potentially push up the current unemployment rate of 4.4%.

If construction hiring doesn't plunge, a continuation of solid service sector hiring will likely help fuel continued strength in wage gains. That would help consumers overcome higher food and energy costs and weaker housing conditions. Average weekly earnings were up 4% in March.

Earnings Calendar
Day Companies
Monday Anadarko Petroleum, Centex, FPL Group, Genworth Financial, Hercules, Hilton Hotels, Humana, Kellogg, Loews, National City, Pitney Bowes, RadioShack, Principal Financial Group, Tyson Foods, Verizon, Vulcan Materials, William Wrigley Jr.
Tuesday Affiliated Computer Services, Allied Waste Industries, Archer Daniels Midland, Automatic Data Processing, Avon Products, Emerson Electric, EOG Resources, Equity Residential, Lincoln National, Liz Claiborne, Marathon Oil, Masco, Medco Health Solutions, MetLife, Procter & Gamble, ProLogis Trust, Qwest Communications, RR Donnelley, Safeco, TECO Energy, Wyndham Worldwide, Yum! Brands
Wednesday Allergan, Assurant, Biogen Idec, CIGNA, Cincinnati Financial, Citizens Communications, Clorox, Cognizant Technology Solutions, Devon Energy, Dominion Resources, DTE Energy, JDSU, Jones Apparel Group, MeadWestvaco, Millipore, Prudential Financial, Rowan Companies, Sempra Energy, Sprint Nextel, Sunoco, Symantec, Time Warner, Transocean, UnumProvident, VeriSign
Thursday CBS, Celgene, CenturyTel, CenturyTel, CMS Energy, Dean Foods, Electronic Data Systems, Estée Lauder Companies, General Motors, InterActiveCorp, International Flavors & Fragrances, International Paper, Kimco Realty, Nabors Industries, PPL, QLogic, Starbucks, Williams Cos.
Friday Apartment Investment & Management, CenterPoint Energy, Eastman Kodak, PSEG, Weyerhaeuser
    Before it's here, it's on the Bloomberg Terminal.