Earnings were largely in focus last week with economic data relatively slow, but this week investors will get a hefty batch of reports from Washington, including the much watched reports on gross domestic product and July’s non-farms payroll. Here’s a breakdown on what investors and economists will be watching:
Although generally not considered “market moving” by most, the National Association of Realtors will release their Pending Home Sales Index for June and the Dallas Federal Reserve will release its Dallas Manufacturing Survey index for July.
Like Monday’s reports, Tuesday features some “B-grade” data, but it is still worth looking to see how the markets react to the S&P/Case-Shiller Home Price Index and the Conference Board’s Consumer Confidence Index (which is very similar to the Reuters/University of Michigan Consumer Sentiment Index).
Gross Domestic Product for Q2 – In the first estimate of second quarter GDP, the broadest measure of economic activity, by the Commerce Department, economists are expecting to see a deceleration for our country. In the final reading of GDP for the first quarter, expansion was sharply – and unexpectedly – revised downward from growth of 2.4 percent to 1.8 percent, largely because of less personal consumption than originally thought. For the second quarter, the bar is set low with expectations of growth of 1.1 percent.
Federal Open Market Committee Meeting Announcement – Not much is anticipated from the Fed’s July 30 – 31 meeting with regards to rates (with short-term rates expected to remain unchanged), but investors will be diving into comments to try and glean the Fed’s view on the state of the economy. Additionally, it is likely that comments reiterating the central bank’s stance on monetary easing policy will come, but traders will also be listening for any definitive timeframes on when tapering of QE3 may begin.
Taking a back seat to GDP and Fed comments, Automatic Data Processing will be releasing its Employment Report for July and the Institute for Supply Management will deliver is Purchasing Managers’ Index report for July.
Initial Jobless Claims for the Week Ended July 27 – Last week, the Labor Department reported that first time filings for jobless benefits in the week ended July 20 increased 2.1 percent to 343,000, exceeding expectations of a rise to 341,000 claims. The four-week moving average, viewed by most as a better gauge of labor trends because it smoothes weekly volatility, moved down modestly to 345,250. Claims below 350,000 are regarded as modest growth in the jobs market. For the latest week, economists are predicting claims to edge upward again, to 345,000.
ISM Manufacturing Index for July – Last month, the Institute for Supply Management said that its manufacturing index rose to 50.9 from a 49.0 reading in May. Marks over 50 signal expansion in the manufacturing sector, while below 50 indicates contraction. In June, new orders, production and imports improved, although employment was weak (at 48.7) and inventories were flat. Economists are expecting to see a strengthening sector in July, calling for the index to climb to 53.0.
To a lesser extent, investors will be looking for Construction Spending for June from the Commerce Department and Markit’s Purchasing Managers’ Index for July.
Employment Situation for July – For June, non-farm payrolls increased by 195,000, matching the number of jobs created in May. The unemployment rate stayed flat at 7.6 percent. Overall, the report last month was well received with the Labor Department upwardly revising April and May’s figures by a total of 70,000, indicating that the labor markets were decelerating in the second quarter as originally estimated. Average hourly earnings improved by 0.4 percent in June, picking-up the pace after a tepid 0.1 percent gain in May. For July, economists are expecting the country to have created 175,000 new non-farm jobs and for the unemployment rate to tick down to 7.5 percent.
Personal Income and Outlays for June – In May, personal income rose by 0.5 percent, significantly more than the 0.1 percent increase the month prior. Consumer spending, closely watched as a major component in GDP, rose 0.3 percent, reversing a 0.3 percent contraction in April. So-called “core” inflation rose 0.1 percent in May, equaling expectations. For June, economists are anticipating a 0.4 percent increase in personal income and a 0.4 percent rise in consumer spending (largely because motor vehicle sales spiked during the month). Core inflation is expected to have risen 0.2 percent.
Also on tap for Friday, but not as impactful as the unemployment rate or outlays, is Factory Orders for June from the Commerce Department.
Clearly, there is a plethora of info that will be bombarding Wall Street this week, with the FOMC comments, GDP and the unemployment rate sitting atop the importance ladder. The "market movers" will be coming mid-week and beyond, so it is likely that the markets will tread with caution early in the week. While the GDP stats are always important, they are backward-looking, so the unemployment rate is probably more important with regards to the Federal Reserve’s commitment to tapering its massive asset purchase package. Also adding some influence to the markets this week will be policy commentary from overseas as the European Central Bank and the Bank of England will also be announcing their latest decisions on economic stimulus, so keep an eye out for what those banks have to offer as well.
All in all, tons of data coming on top of earnings season running in high gear.