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June 30th, 2008

Mon, Jun 30 2008, 08:20 GMT
by Marcial Nava, Alejandro Neut

BBVA Bancomer

Non Farm Payroll and Unemployment rate (June, Thursday 8:30)

F: -85K     5.3%     C: -50K     5.4%    P: -49K     5.5%

Last month’s payroll data and unemployment rate were seemingly contradictory. While no one was surprised by the non-farm payroll data released (which showed that May’s total non farm payrolls had decreased by 40,000), May’s unemployment rate came out unexpectedly high. The reason to this apparent contradiction was a higher that expected increase in labor participation. The Fed hence dismissed this higher unemployment rate, under the impression that the rise in labor participation was transitory and would not constitute the beginning of a trend. Next week we will see data that will confirm or deny the Fed’s assumption. We expect that it will be ratified, and that the rise in labor participation will not magnify the already low non farm payroll data.

We do expect that non farm payrolls data has further decreased in June, with even larger losses than observed the previous month (-85 thousand for June compared to -49 thousand in May). But at the same time we expect the unemployment rate will not go along. On the contrary, we expect June unemployment rate to step back to 5.3% (from May’s 5.5%). This scenario assumes that in June labor participation has corrected all the abnormal increase observed the previous month.

Manufacturing ISM (June, Tuesday 8:30)

F: 49     C: 49.6     P: 49.6

Last month ISM data was better than expected, thus constituting one of the several elements used by the Fed when arguing that the economic downturn was not spiraling out of control. Both new orders and production showed signs of strength - largely due to robust global growth. Clearly, the weaker dollar has helped lift exports, although this week’s FOMC shows that policymakers are increasingly worried about the possible inflationary impact. Prices in the ISM show the reason behind the Fed’s current unrest: while non-manufacturing data seems stalled, prices are under mounting pressures.

Nonmanufacturing ISM (June, Thursday 8:30)

F: 51     C: 52:     P: 51.7

This is another report which suggests that the economic downturn is not intensifying. Despite a huge reduction in January, this variable has kept above the 50 point benchmark. But there have been initial signs that services are starting to feel the effects of the downturn at a more structural level. We do expect non-manufacturing ISM to suffer as a result, but we do not expect it to cross the 50 point barrier. Services still constitute a pillar for the US economy, closely watched by the Fed, and one of the few resilient sectors during the current downturn.

Construction Spending (May, Tuesday 8:30)

F:-0.6%     C: -0.6     P: -0.4

The housing sector continues under considerable stress. Nothing has changed since our prevision that the housing market would touch bottom only at the end of this year. Prices continue to drop and credit restrictions are tightening. Construction Spending will therefore not recover any time soon.

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Published on  Mon, Jun 30 2008, 08:30 GMT