Vital Signs: A Jittery Market

On tap: July employment report, June personal income and spending, July national business activity surveys, second quarter employment costs

The financial markets are getting jumpy. Concerns about bad subprime loans, tightening credit conditions, mixed news on corporate earnings, and new evidence that the housing market is far from stabilizing have gotten under investors skin and into their heads. Yet through the past few tumultuous weeks, Wall Street has kept telling itself everything will be OK because the U.S. economy, outside of housing, remains strong.

That's why this week's bevy of economic and earnings reports will be important. The most vital numbers come at the end of the week in the July employment report. Hiring is expected to be solid but unspectacular and the unemployment rate should hold at a low 4.5%.

Ahead of the jobs data, June personal income and second-quarter employment cost figures come out. These should show that a tight labor market is producing solid wage gains that should help consumers keep spending despite higher food and energy costs, and housing's ongoing issues. Tepid consumer spending, unless it turns out much worse than expected, shouldn't be a cause for alarm. Gas prices are already retreating, which should improve spending in the third quarter.

After a weak June durable goods report, which showed fewer orders for and shipments of important business equipment such as computers, the national business activity surveys from the Institute for Supply Management bear watching. The reports have been pretty upbeat lately.

The latest construction spending figures deserve a look to see to see if residential spending has fallen further and to make sure that the non-residential area remains strong. The boom in non-residential activity has been viewed as proof that businesses are willing to invest and are confident about their prospects.

The broad array of data has the potential to soothe nervous investors and help the stock market bounce back. But if the numbers fall short: take cover.

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

Economic Reports
Report Date Time For Median Estimate Last Period
Personal Income Tuesday, July 31 8:30 a.m. June 0.5% 0.4%
Personal Consumption Expenditures Tuesday, July 31 8:30 a.m. June 0.1% 0.5%
Employment Cost Index Tuesday, July 31 8:30 a.m. Q2 0.9% 0.8%
Chicago PMI Tuesday, July 31 10 a.m. July 58.0 60.2
Consumer Confidence Tuesday, July 31 10 a.m. July 105.0 103.9
Construction Spending Tuesday, July 31 10 a.m. July 0.3% 0.9%
ISM (manufacturing) Wednesday, Aug. 1 10 a.m. July 55.5 56.0
Factory Orders Thursday, Aug. 2 10 a.m. June 1.3% -0.5%
Nonfarm Payrolls (thousands) Friday, Aug. 3 8:30 a.m. July 133 132
Manufacturing Payrolls (thousands) Friday, Aug. 3 8:30 a.m. July -13 -18
Unemployment Rate Friday, Aug. 3 8:30 a.m. July 4.5% 4.5%
Average Hourly Earnings Friday, Aug. 3 8:30 a.m. July 0.3% 0.3%
Hours Worked Friday, Aug. 3 8:30 a.m. July 33.9 33.9
ISM (non-manufacturing) Friday, Aug. 3 10 a.m. July 59.0 60.7

ICSC-UBS STORE SALES - Tuesday, July 31, 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 July 28. The yearly pace of growth slowed to 3%, from 3.4% for the week ended July 14.

S&P/CASE SHILLER HOME PRICE INDICES - Tuesday, July 31, 7:45 a.m. EDT

The S&P/Case Shiller Home Price Indices measures changes in home prices on a monthly basis in 20 major metropolitan areas. Price changes are tracked by using repeat sales data. When a house is resold, the latest sales price is paired up to the amount from the prior purchase.

In April, the home price index for the entire group of 20 cities fell 0.2% from March, and was off 2.1% from a year ago. The biggest monthly drops occurred in Detroit, Miami, and Tampa. But some markets remain immune to the housing slump as home values in April rose by at least 1% in Charlotte, Dallas, Portland, and Seattle.


Personal income probably increased 0.5% in June. That's the consensus estimate among economists queried by Action Economics.

The solid rise in June would follow a decent 0.4% gain in May, after a surprising 0.2% dip in April. On a yearly basis, incomes are rising around a 6% clip. In May, personal income was up 6.1% from a year ago, after a 5.8% increase in April. Continued strength in income growth is key in limiting the negative impacts of elevated gasoline prices and the ongoing weakness in housing.

Higher gasoline prices and weaker auto sales are expected to weigh on consumer spending for June. In both May and April, spending rose 0.5%. After taking into account inflation, spending looked quite modest, with a 0.1% gain in May and a 0.2% rise in April. In the second quarter, real consumer spending posted the weakest performance since the hurricane-affected fourth-quarter of 2005. However, now that gas prices appear to be retreating, a rebound in the third quarter looks probable.

Another key piece of data in the report is the personal consumption expenditures (PCE) price index. This is the preferred measure of inflation by the Federal Reserve. The headline index zoomed up 0.5%, after a 0.3% rise in April and a 0.4% increase in the previous month. On a yearly basis, headline inflation picked up to 2.3%, from 2.2% in April.

Excluding food and energy, prices rose a much tamer 0.1% for the second straight month. The yearly pace of core inflation has cooled from 2.4% in February to 1.9% in May. That puts the index squarely within the Fed's inflation "comfort zone" of 1% to 2% for the first time since early 2004.

EMPLOYMENT COST INDEX - Tuesday, July 31, 8:30 a.m. EDT

The Labor Dept.'s second-quarter employment cost index, a measure of wages, salaries, and benefits paid by businesses, is forecast to have grown 0.9%, after a 0.8% increase in the first quarter. The expected gain would keep compensation growing at a 3.5% yearly pace.

Wage and salary growth was 1.1% in the first quarter of 2007, while benefit costs barely moved, with a 0.1% increase. In fact, excluding government employees, benefit costs were down 0.3%. On a yearly basis, wages rose to a 3.6% clip, marking a continued acceleration. The acceleration in wages shows that the labor market remains pretty tight and that consumers are seeing big enough increases in their paychecks to deal with higher energy prices. Meanwhile, benefit costs were up 3.1% from a year ago, indicating that businesses are still making progress on reining in health care expenses.

JOHNSON REDBOOK INDEX - Tuesday, July 31, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the first three fiscal weeks of July, ended July 28. In the first two weeks of July, sales were up 0.5% compared the same period in June. For the full month of June, sales were off 1.3%.


The Chicago-area purchasing managers' industrial activity index most likely slipped a little more in July, although it is expected to remain at a solid level. The June edged down to 60.2%, from 61.7% in May, but was still quite a bit above the April reading of 52.9%. The latest results correspond with other regional and national factory activity surveys showing improvements in conditions.

Within the details of the June report, the production and new orders indexes retreated a bit, but were still at relatively strong readings of 66.5% and 65.7%, respectively. The employment index also showed a sizeable slowdown in the pace of hiring.

CONSTRUCTION SPENDING - Tuesday, July 31, 10 a.m. EDT

Construction outlays probably improved modestly in June, after a surprisingly strong performance in May. Total construction spending jumped 0.9% in May, as private nonresidential activity jumped 2.7%, while government spending improved 2.2%. Those increases easily offset the 0.8% fall in private residential building outlays. Compared to last May, private nonresidential and government spending have increased 18.9% and 11.3%, respectively. At the same time, the private residential category showed a 17.6% decline.

If housing construction posts smaller declines going forward, it would mean less drag on economic growth. Recent housing figures, including June home sales data, show that housing could end up posing a drag on growth, even if just marginally, for a longer period than many economists had previously expected.

CONSUMER CONFIDENCE INDEX - Tuesday, July 31, 10 a.m. EDT

The Conference Board's index of consumer confidence probably posted a small rebound in July as gasoline prices showed signs of retreating. A rise in the index would be a reassuring sign for improved consumer spending in the third quarter, after a very weak second quarter. However, sentiment measures do have a poor track record as a leading indicator of spending.

The index tumbled to 103.9, from 108.5 in May. The June result was the weakest since last August. The share of those who believed business conditions were bad rose to 16.4%, an eight month high. There was increased uncertainly surrounding the labor market with more consumers feeling that jobs were hard to get. More consumers also expected a decrease in their income over the next six months.

VEHICLE SALES - Wednesday, Aug. 1

Vehicle sales in July are forecast to bounce back to an annual rate of 16.4 million, according to Auto makers have instituted a new round of incentives to move vehicles. June sales came in at an annualized rate of 15.6 million units, after sales of 16.2 million in May, and 16.3 million in June of 2006. Sales in the second quarter were the weakest since the third quarter of 1998.

MORTGAGE APPLICATIONS - Wednesday, Aug. 1, 7 a.m. EDT

The Mortgage Bankers Association releases its mortgage Weekly Mortgage Applications Survey of home buying and refinancing application activity for the week ending July 27. In the week ended July 20, the purchase index dropped 5% to 424.2, after a small decline to 446.5 in the prior week. The refi index retreated to 1692.9, from 1717.4 in the period ended July 13.

The four-week moving average for the purchase index dropped 5%, to 440.5 in the week ended July 20, after a small decline to 441.7 in the prior week. The refi index also retreated, falling to 1683.6, from 1693.3 the period ended July 13.

The average 30-year fixed-rate mortgage was 6.59%, vs. 6.61% in the previous week.

ADP NATIONAL EMPLOYMENT REPORT - Wednesday, Aug. 1, 8:15 a.m. EDT

The ADP National Employment Report is a measure of nonfarm private employment using anonymous payroll data of nearly 400,000 businesses and 23 million workers. The monthly figures are prepared by Macroeconomic Advisers, an economic consulting firm. The report is normally released on the first Wednesday of the month and is used by economists to get an early feel for how the labor markets are doing ahead of the official government employment figures.

In June, the ADP figures showed an increase in private payrolls of 150,000, while the Labor Dept. reported an overall increase in non-farm payrolls of 132,000 and private nonfarm hiring of 92,000. In the services sector, the ADP figure was up 163,000 while the corresponding Labor Dept. figure rose by 95,000.

ISM SURVEY - Wednesday, Aug. 1, 10 a.m. EDT

The Institute for Supply Management's factory activity report for July probably edged lower. The June headline figure posted a stronger-than-expected increase to 56%, from 55% in May, and 54.7% in April. The June reading was the best since April of 2006. This report, along with the latest factory order and industrial output figures, show conditions are improving for manufacturers.

Both new orders and production have picked up. The new orders index hit a 17-month high, while the production component reached a 35-month high. This comes as fewer respondents are reporting increases in their inventories and hiring remains tepid. Many manufacturers are still saying prices for parts, equipment, materials and other goods continue to rise.

PENDING HOME SALES - Wednesday, Aug. 1, 10 a.m. EDT

The National Association of Realtors index of pending home sales measures sales activity by looking at signed real estate contracts for existing residences. In May, the index fell to 97.7 with existing home sales falling 3.8% in June. The index declined to 101.2 in April and 104.8 in March. The weakness was concentrated in the Midwest and South. In May, pending home sales were up in the Northeast and West.

Further weakness in the June index would imply additional declines in actual sales going forward. The ongoing erosion in home sales is due in part to a ratcheting up of lending standards by banks.

JOBLESS CLAIMS - Thursday, Aug. 2, 8:30 a.m. EDT

Jobless claims for the week ended July 21 edged down to 301,000, after easing to an upwardly revised 303,000 for the week ended July 14 and 309,000 the week before. The four-week moving average dropped to 308,500, from 312,500 in the week ended July 14. Continuing jobless claims for the week ended July 14 edged down to 2.55 million, from 2.56 million. The string of low weekly initial claims data bodes well for a solid July employment report.


Factory orders in are expected to have bounced back in June. In May, orders fell 0.5%, offsetting the 0.5% rise back in April. The June durable goods results already showed a 1.3% rise in orders, but that came from a 28.7% jump in orders for civilian aircraft. Capital goods orders outside of defense equipment and aircraft -- which includes such items as machinery, metals, and computers -- were reported to be down 0.7%, after a 1.5% decline in May.

The figures fight with the recent batch of upbeat factory activity surveys that showed manufacturers across the country were seeing gains in orders. If orders remain soft going forward, it would call into question the durability of the manufacturing sector's recent rebound.


Friday, Aug. 3, 8:30 a.m. EDT - U.S. Treasury Secretary Henry Paulson attends a ceremony celebrating the Idaho quarter at the Boise Depot in Boise, Idaho.

EMPLOYMENT REPORT - Friday, Aug. 3, 8:30 a.m. EDT

Companies probably kept hiring at a modest pace in July. According to economists surveyed by Action Economics, non-farm payrolls are expected to have grown by 133,000 workers, after a June increase of 132,000.

Within the hiring figures, economists will be looking to see what happened in professional and business services. In June, 9,000 workers in this industry lost their jobs and hiring in the second quarter was the slowest in four years. This area includes temporary workers, which are viewed as a potential leading indicator for the overall labor market. If businesses are looking to ramp up, then temporary workers are usually brought in before full scale hiring ensues. Conversely, in slower times, temp workers are usually the first to go. The number of temporary workers fell by 27,200 persons in the second quarter.

Other aspects of the report should remain upbeat. The unemployment rate is expected to hold at a low 4.5% for a fourth straight month, while hourly wages should continue to grow at a solid pace. On a yearly basis, wages are growing nearly 4%, a pace that's faster than inflation. Decent wage gains and overall income growth are giving consumers the ammunition to keep shopping despite higher food and energy costs.


The Institute for Supply Management releases its report on non-manufacturing business activity, made up mostly of service sector operations. The July index probably moderated slightly after a surprise improvement in June. The latest headline reading was 60.7%, from 59.7% in May, and 56% in April.

Unlike the manufacturing respondents, there was a decline in the new orders index and the employment reading was nearly unchanged at a solid level of 55%. Meanwhile, 35% said they paid more for materials and services, down from 41% and 42% in May and April, respectively.

Earnings Calendar
Day Companies
Monday Anadarko Petroleum, Archer Daniels Midland, FPL Group, Humana, Loews, Monster Worldwide, Pitney Bowes, Principal Financial Group, RadioShack, Simon Property Group, Sun Microsystems, Tyson Foods, Verizon, Vulcan Materials, William Wrigley Jr.
Tuesday American Capital Strategies, Aon, Automatic Data Processing, Avon Products, Bemis, CBS, Coventry Health Care, Entergy, General Growth Properties, General Motors, IAC, Lincoln National, Liz Claiborne, Marathon Oil, Masco, MetLife, Millipore, NCR, Safeco, Valero Energy, Waste Management, Whole Foods Market
Wednesday Allergan, Avalonbay Communities, CA, CIGNA, Citizens Communications, Cognizant Technology Solutions, Devon Energy, Dominion Resources, Electronic Arts, Electronic Data Systems, Equity Residential, Jones Apparel Group, Kraft Foods, MeadWestvaco, Molex, Moody's Corporation, Parker Hannifin, Prudential Financial, PSEG, Qwest, RR Donnelley, Starbucks, Sunoco, Time Warner, Transocean, Unum Group, Walt Disney, Wyndham Worldwide
Thursday Allied Waste Industries, Ameren, Apartment Investment & Management, Assurant, CenterPoint Energy, CenturyTel, Chesapeake Energy, Clorox, CMS Energy, CVS Caremark, Eastman Kodak, International Paper, Maxim Integrated Products, Newmont Mining, OfficeMax, PPL, Rowan Companies, Starwood Hotels & Resorts, TECO Energy, Viacom, Williams
Friday EOG Resources, Procter & Gamble, Weyerhaeuser
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