The next 24 hours will be huge. In fact, the whole week will be huge.
“This week’s data docket will be important in shaping investors’ initial expectations for current quarter GDP growth with January manufacturing ISM, ADP employment and January nonfarm payrolls,” said Deutsche Bank’s Joe LaVorgna who described this week as “the Super Bowl of economic data.”
Meanwhile, we’ll also see Janet Yellen sworn in as the new chair of the Federal Reserve.
Here’s your Monday Scouting Report:
Wage Growth: Everyone seems to be chattering about wage growth lately. Economists have largely based their inflation forecasts on assumptions about wage growth; this in turn has driven forecasts about monetary policy. Many stock market strategist have based their earnings and profit margin forecasts on assumptions about wage growth; the idea is wage growth is good for the economy but bad for profit margins and earnings growth.
Unfortunately, experts are split. Some say labour market slack will keep wage growth low. Others point to surveys in which employers complain about an inability to fill positions with qualified labour.
“The lack of response of wages to falling unemployment is a mystery to many economists and is a source of huge support for Fed officials who are keeping rates far too low relative to nominal GDP growth,” said Societe Generale’s Kit Juckes on Friday. “My bet is that an uptick in the employment/population ratio could trigger at least a small break higher (say to a 2-3% range) in the pace of wage growth and that would be the one development that would spook the Fed.”
We’ll be writing more about actual and expected wage growth as we get more information.
- Markit US PMI (Mon): Economists estimate this index of activity climbed to 53.9 in January.
- ISM Manufacturing (Mon): Economists estimate this widely followed manufacturing activity index fell to 56.0 in January from 57.0 in December. “A decline is expected following lower prints in the US Markit PMI, China PMI, and an ISM adjusted Philly Fed Index (which fell more than 4 points to 52.4 in December),” said Credit Suisse’s economists. “Softer durable goods are hinting in the same direction.”
- Construction Spending (Mon): Economists estimate spending growth was flat in December. “After surging 19.5% in November, single-family housing starts only fell 7.0% in December, leaving the two months at the highest pace in five years,” noted Morgan Stanley’s Ted Wieseman. “We expect to see continued flow through of this strength into residential spending in December after an initially relatively muted 1.6% rise in homebuilding in November.”
- Vehicle Sales (Mon): Analysts believe vehicle sales climbed to an annualized pace of 15.7 million in January. “Industry surveys have pointed to a rebound in sales in January even with a headwind from unusually cold weather through much of the month after a pullback from a six-year high of 16.3 million in November to 15.3 million in December,” said Morgan Stanley’s Wieseman.
- Factory Orders (Tues): Economists estimate orders fell 1.8% in December. “The 4.3% plunge in durable goods orders, including a 1.3% drop in core capital goods orders, should be partly offset by higher nondurable goods orders, with support from higher petroleum product prices,” said Morgan Stanley’s Wieseman.
- ADP Employment Change (Wed): Economists estimate private payrolls increased by 190,000 in January. “Last month’s ADP miss relative to BLS private jobs (238K vs 87K) was the largest in three years,” noted Credit Suisse’s economists. “The average absolute miss over the last year is 51K. Five out of the last six ADP reports have printed above the first-reported BLS private jobs.”
- ISM Non-Manufacturing (Wed): Economists estimate that the ISM services index climbed to 53.7 in January from 53.0 in December. “Richmond and Dallas Fed services indicators improved on the month, and the Chicago Fed National Activity Index (which tends to lead ISM) was at a decent level the prior two months,” said Credit Suisse’s economists.
- Trade Balance (Thurs): Economists estimate that the trade deficit expanded to $US36.0 billion in December. “Container data suggests imports increased over the month and exports pulled back following two months of strong growth,” said Wells Fargo’s John Silvia.
- Initial Jobless Claims (Thurs): Economists estimate initial claims climbed to 335,000 from 348,000 a week ago. “Initial jobless claims probably posted a modest decline after an unexpected pop,” said Citi’s Peter D’Antonio. “If correct, the four-week moving average edged up, but remained in its recent low range.”
- The Jobs Report (Fri): Economists estimate U.S. companies added 180,000 nonfarm payrolls in January, led by a 190,000 increase in private payrolls. The unemployment rate is expected to be unchanged at 6.7%. Average hourly earnings are expected to have grown by 1.8% year-over-year. “Special factors make the January employment report especially difficult to forecast and likely interpret,” warned Citi’s D’Antonio. “Normally, weather-related weakness is made up in the next month; however early January was also exceptionally cold. In addition, we think the yearend run-up in retail hiring has run its course. Note 1: Risks for the household survey are two-sided. On one side, the labour force participation rate has fallen by 0.7 percentage point in the past six months and could rebound. On the other side, federal emergency unemployment benefits expired on January 1. Unemployment would have declined to the extent that people who lost their benefits either found jobs or left the workforce.”
- Consumer Credit (Fri): Economists estimate consumer credit balances increased by $US12.0 billion in December. “In the past few years, non-revolving credit, specifically federal student loan programs, has been expanding at a brisk pace while revolving credit has recovered much more slowly,” said Barclays’ economists. “We look for this trend to continue in December and expect an expansion of $US15.0bn in total consumer credit outstanding on the month.”
In the wake of all the market volatility that has put stocks in the red for the year, investors and traders are looking for reasons why the bull market, which began in March 2009, may be over.
However, there isn’t always a catalyst that sends stocks lower. Sometimes, it’s just time for stocks to fall.
“We’ve gone for an awfully long time without a correction,” noted UBS’s Art Cashin to CNBC on Friday. “Bull markets tend to have a maximum life of five years. We’re getting awfully close to that.”
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