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The Week Ahead

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Non−manufacturing ISM, IJC, TB and Wholesale Inventories

Mon, Oct 5 2009, 08:13 GMT
by Marcial Nava

BBVA Bancomer

Non-manufacturing ISM (September, Monday 10:00 ET) 

F: 49.5 C: 50.0 P: 48.4

The ISM Non-Manufacturing Index is expected to remain virtually unchanged. Although the index has rebounded substantially since November 2008 -when it reached a minimum of 37- its trend continues to show a weak environment for non-manufacturing industries such as construction, services and finances. Uncertainty in these sectors remains, as suggested by September’s employment report, which showed a contraction of 263,000 jobs in the month vs. 201,000 in August. Employment losses were widespread, with the service sector accounting for almost half of them. We maintain our expectation of a slow economic recovery in the coming quarters.

Initial Jobless Claims (w/e 10/3/09, Thursday 8:30 ET) 

F: 545K C: 540K P: 551K

Initial jobless claims have shown a gradual improvement over the past six months; yet, they are still well above the levels of early 2008. Their modest recovery is consistent with recent payroll figures that depict a slower pace of job destruction than in the first half of the year. On the other hand, continuing jobless claims have bottomed out, though they remain high by historical standards. This suggests that the unemployment rate could remain elevated.

Trade Balance (August, Friday 8:30 ET) 

F: -$33.5B C: -$33.0B P: -$32.0B

Positive news in some foreign economies boosted exports over the past three months. Moreover, imports of goods increased substantially in July, suggesting a better economic environment for U.S. consumers. We expect these trends to continue, although with some reservations. On the exports side, positive surprises have been limited to only a few countries, while on the imports side, economic conditions in the U.S. remain weak. Therefore, international trade is likely to remain subdued for some more quarters.

Wholesale Inventories (August, Thursday 10:00 ET) 

F: -1.2% C: -1.0% P: -1.4%

Inventories likely declined in August for the twelfth consecutive month as firms continue to scale back production in response to a sluggish demand. However, some indicators suggest that this trend could revert in the near future. Industrial production increased in August for the second consecutive month; in particular, manufactuiring output rose by 1% on average in July and August, following eighteen consecutive months of contraction. Business confidence have also improved, suggesting slightly better conditions. Moreover, whosesale inventories have increased from May to July, boosting the inventories to sales ratio. In order to bring this ratio back to normal levels, firms will have to increase production. Therefore, inventory accumulation is likely to contribute possitively to GDP growth in the near future.

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Published on  Mon, Oct 5 2009, 08:18 GMT