Vital Signs: Recession on the Horizon?

On tap: September employment report, national business activity, August pending home sales

The economy is feeling the squeeze from tougher financial conditions and the crumbling housing market. What isn't certain is just how much these factors are constricting growth and whether the economy is now weak enough to slip into a recession.

That's why the September jobs report is so important. Even as economic growth cooled down last year, the housing recession worsened, gasoline prices flared up, and troubles in the subprime mortgage market emerged this summer, the economy's optimists believed consumers could persevere because the labor market was solid. Wages and salaries, which account for over 60% of after-tax personal income, are growing at an annual rate of close to 5.5% this year.

But the job market has cooled off considerably in the past couple months. The August increase in private payrolls of 24,000 workers was the smallest since early 2004. While the manufacturing and construction sectors are bearing the brunt of the weakness, the pace of hiring in the service sector also faded. The weaker job growth now has consumers feeling more pessimistic about the labor market.

Economists expect a mild rebound in payrolls in September. Lower jobless claims certainly are cause for some optimism, but another poor result would raise a red flag about the resiliency of consumer spending and the economy at large.

If business aren't hiring in response to the recent changes in financial and economic conditions, they probably are holding back on spending in other areas too. August business activity reports from the Institute for Supply Management showed some softening in demand. The September results are important to see if conditions have worsened. The August factory goods data will also provide an update on conditions for manufacturers.

Besides the numbers, several key Federal Reserve officials from the past and present are scheduled to speak. Most notably is former Fed Chairman Alan Greenspan, who pops up in London and Washington D.C. to give speeches.

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

Economic Reports
Report Date Time For Median Estimate Last Period
ISM (manufacturing) Monday, Oct. 1 10:00 a.m. September 53.0 52.9
ISM (non-manufacturing) Wednesday, Oct. 3 10:00 a.m. September 55.1 55.8
Factory Orders Thursday, Oct. 4 10:00 a.m. August -1.5% 3.7%
Nonfarm Payrolls (thousands) Friday, Oct. 5 8:30 a.m. September 115 -4
Manufacturing Payrolls (thousands) Friday, Oct. 5 8:30 a.m. September -10 -46
Unemployment Rate Friday, Oct. 5 8:30 a.m. September 4.7% 4.6%
Average Hourly Earnings Friday, Oct. 5 8:30 a.m. September 0.3% 0.3%
Hours Worked Friday, Oct. 5 8:30 a.m. September 33.8 33.8
Consumer Credit (billion) Friday, Oct. 5 3:00 p.m. August $8.0 $7.5


Monday, Oct. 1, 8 a.m. EDT - Former Federal Reserve Board Chairman Alan Greenspan speaks at the Chatham House in London.

1:30 p.m. EDT - Greenspan speaks at a London School of Economics event in London.

ISM SURVEY - Monday, Oct. 1, 10 a.m. EDT

The Institute for Supply Management's factory activity report for September is expected to edge lower. In August, the index revealed a factory sector facing a slower pace of growth, with a headline reading at 52.9%, from 53.8% the month before, and 56% in June.

It appeared that production picked up slightly in August, although the new orders index fell further, with 21% of respondents reporting that demand was worse, the highest such level since February. The index of order backlogs also eased. It appears that most of the easing in orders is domestic in nature, with the export orders index climbing to 57%, from 56.5% in July and 56% in June.


Consumers in August most likely reined in their use of credit cards. Consumer debt climbed $7.5 billion in July, following a jump of $11.9 billion in June. Consumers appear to be using their credit cards more often with a yearly rise of 6.6% in July for revolving credit vs. 3.8% for non-revolving credit. However, the overall growth rate in installment debt is slowing with a yearly pace of 4.8% in July, from 5.1% in June.


Tuesday, Oct. 2, 3 a.m. EDT - Greenspan gives a speech at a Bloomberg breakfast event in London.

1 p.m. EDT - Federal Reserve Bank of Dallas President Richard Fisher talks at the Greater Dallas Chamber of Commerce's 7th Annual State of technology Luncheon in Dallas.

1:30 p.m. EDT - Greenspan speaks at a City of London event in London.

VEHICLE SALES - Tuesday, Oct. 2

September vehicle sales probably held up pretty well after a surprise August improvement. According to, sales are expected to come in at an annual pace of 16.1 million units, after an August rate of 16.2 million. There is even an expectation that the domestic auto makers could see a gain market share for a second consecutive month.

Deep discounts and incentives should help fuel September sales, but the move is only a temporary prop. Some economic fundamentals such as the housing recession, elevated energy prices, and uncertainty about economic growth do not bode well for sales in the fourth quarter.

ICSC-UBS STORE SALES - Tuesday, Oct. 2, 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 Sept. 29. Sales fell another 1% in the week of Sept. 22, after a 1.1% drop in the prior period. The declines have raised concerns about the resilience of consumer spending. The latest decline pulled the yearly pace of growth down to 2.3%, from 2.5% the week before.

JOHNSON REDBOOK INDEX - Tuesday, Oct. 2, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the fourth week of September, ending Sept. 29. In the third fiscal week, sales were up 0.5% vs. the same period in August. Sales for the entire month of August through Sept. 1 were down 0.5%.

PENDING HOME SALES - Tuesday, Oct. 2, 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. The index is viewed as a leading gauge of existing home sales.

Economy watchers will be anxious to see the August results after a 12.2% plunge in July. In August, existing home sales fell to an annual pace of 5.5 million, a 4.3% fall from July. The pending home sales index has also fallen more in the past year than sales. Economists expect further drops in sales during the remainder of this year.

MORTGAGE APPLICATIONS - Wednesday, Oct. 3, 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 Sep. 28. The purchase index dropped 7.3% to 418.8 in the latest week, following a 0.9% rise to 452 in the prior period. The refi index jumped up to 2026.5 in the week ended Sept. 21, from 1962 in the previous period. However, higher mortgage rates could drive refi applications down in the next couple weeks.

The four-week moving average for the purchase index was 436.2, from 437.4 in the week ended Sept. 14. The refi index jumped to 1908.8, from 1834.6.

The Federal Reserve's Sept. 18 rate cut didn't lower mortgage rates yet. The average interest rate for a 30-year fixed-rate mortgage rose to 6.38% from 6.29%.

ADP NATIONAL EMPLOYMENT REPORT - Wednesday, Oct. 3, 8:15 a.m. EDT

The ADP National Employment Report is a measure of nonfarm private employment using anonymous payroll data of close to 383,000 businesses and about 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 a preliminary picture of how the labor markets are doing ahead of the official government employment figures.

The ADP figures showed a second straight disappointing increase in August. Payrolls were reported to have risen just 38,000, after growing by 41,000 workers in July. The Labor Dept. reported a drop of 4,000 workers in total non-farm payrolls for August, after a rise of 68,000 in July. Excluding government workers, the picture looked a little better. but the August gain of 34,000 jobs was still pretty soft.

ISM NON-MANUFACTURING SURVEY - Wednesday, Oct. 3, 10 a.m. EDT

The Institute for Supply Management releases its report on non-manufacturing business activity, made up mostly of service sector operations. The September index will likely show that activity is cooling off a little further.

In August, the index held at 55.8% for a second straight month. The August level is still positive, although it's down considerably from 60.7% in June, and the lowest reading since March.

In August, respondents reported acceleration in demand with an orders index of 57%, from 52.8% the month before. Yet the employment index fell to 47.9%, indicating more businesses trimmed payrolls than hired workers. In addition, the inventories index implies a pickup in stockpiles, while the backlog index fell to 50%, implying no change in unfilled orders. The August results generally paint a picture of weaker economic conditions.


Thursday, Oct. 4, 7:20 a.m. EDT - Federal Reserve Board Governor Frederic Mishkin gives a speech titled "Will Monetary Policy become More of a Science?" at an event for the Deutsche Bank Prize in Financial Economics awarded this year to Michael Woodford in Frankfurt, Germany.

12:30 p.m. EDT - Greenspan gives a luncheon speech entitled "The Impact of Global Markets on America's Economy" at a National Investment Center Conference in Washington, D.C.

12:45 p.m. EDT - Federal Reserve Bank of Dallas President Richard Fisher speaks before the Charlotte Economics Club in Charlotte, N.C.

JOBLESS CLAIMS - Thursday, Oct. 4, 8:30 a.m. EDT

Jobless claims dropped below 300,000 for the first time since May in the latest period. For the week ended Sept. 22, initial claims stood at 298,000, from 313,000 in the prior period, and 320,000 in the week ended Sept. 8.

The four-week moving average plunged to 311,500, from 321,250 in the week ended Sept. 15. Continuing jobless claims, which run a week behind the initial claims figures, popped up to 2.55 million, from 2.54 million in the week ended Sept. 8.


Factory orders will likely fall in August after a solid July. The durable goods data already showed a 4.9% drop in August, with a huge 41% plunge in orders for civilian aircraft. But even outside of transportation, which also included a 6.2% decline in motor vehicle orders, demand was soft. Orders for computers and machinery fell. Other factory data has also been soft, including the Federal Reserve's measure of factory output and the ISM's manufacturing activity report.


Friday, Oct. 5, 9:10 a.m. EDT - Federal Reserve Board Vice Chairman Donald Kohn speaks about the economy at the Greater Philadelphia Chamber of Commerce Annual Meeting in Philadelphia.

7 p.m. EDT - Federal Reserve Board Governor Kevin Warsh will speak about financial market developments at the New York State Economics Association Annual Conference in Loudonville, N.Y.

EMPLOYMENT REPORT - Friday, Oct. 5, 8:30 a.m. EDT

Economists are forecasting a pickup in payrolls for September after a couple of pretty soft months. The consensus estimate according to Action Economics is for non-farm employment to grow by 115,000 workers, after a loss of 4,000 jobs in August. It was the first monthly decline in exactly four years.

Most of the weakness in August was in manufacturing and construction, with a fall in government payrolls as well. Hiring has also slowed in the service sector. Private service sector payrolls have grown by an average of 124,000 workers in the past six months, the slowest pace since the end of 2004.

The unemployment rate probably ticked up to 4.7% in September. The jobless rate bottomed out at 4.4% in March, and may now be gradually creeping back up as hiring slows.

So far, however, wage gains remain pretty healthy. But this too could slow if job growth doesn't improve. Economists are forecasting a 0.3% rise in September for a third straight month. The yearly growth rate in wages continues to outpace inflation, with a 3.9% gain in August.

Earnings Calendar
Day Companies
Monday Walgreen
Tuesday Micron Technology, Pepsi Bottling Group
Wednesday Arrow International
Thursday Constellation Brands, Family Dollar, Marriott International
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