WASHINGTON (AFX) - US economic data to be released in the coming week will confirm trends that have now been well established, analysts said -- a recession in manufacturing, and pronounced weakness in the labor market.
"The broad spectrum of the data really suggest more of the same: much weakness coming from the manufacturing sector," said Rick MacDonald, economist at Standard & Poors' MMS International. Factory orders are seen falling in April, reflecting the already announced drop in durable goods orders.
This would fall in step with other indicators of manufacturing weakness, including the 124,000 drop in manufacturing payrolls in May, and another decline in the National Association of Purchasing Management (NAPM) business index of business activity in May to 42.1,
from 43.2 in April -- still well below the break-even point of 50.
"Manufacturing remains in pretty bad shape," MacDonald said, predicting that "there won't be a turnaround any time soon."
The factory orders report is relevant because it indicates business planning with regard to future capital spending, noted Mike Moran, chief economist at Daiwa Securities America.
A decline in orders indicates further depressed conditions in capital spending, he said.
"It's very tough to say when (capital spending will turn around)," Moran said, adding that anecdotal reports from business leaders indicate "it could be a long way off."
Moran, along with many economists, sees consumption growth rising into the next quarter with the combined impact of aggressive monetary easing and a tax cut that will return about 55 bln usd to taxpayers later this year.
However, this will probably be only a temporary boost, and businesses are still likely to be too cautious about overall demand conditions to increase business investment, he said.
Moran concluded a confirmed turnaround in capital spending may not come until well into next year.
Meanwhile, further labor market weakness is seen emerging from the weekly jobless claims figure, due Thursday, with a third consecutive week of claims above 400,000.
Although the U.S. unemployment rate fell in May to 4.4 pct from 4.5 pct the previous month, economists cautioned that this masked signs of underlying weakness.
"I don't think that can be utilised as a bullish signal," said Ian Morris, economist at HSBC Securities in New York.
Morris noted that it was only through a contraction in the overall labor force that the unemployment rate declined -- not through a rise in actual employment.
In fact, civilian employment fell in the month by 251,000 jobs. A weekly jobless claims figure above 400,000 would be consistent with negative monthly non-farm payrolls growth, Morris said.
In May, non-farm payrolls dropped 19,000. A decline in June would make three consecutive monthly declines in jobs, Morris noted. Weekly jobless claims will be a good indicator for pointing to a turnaround in the labor market, said Bank of Montreal economist Tim O'Neill, when they do eventually start coming down.
Weekly claims "are a good, distant early warning on where the overall job market is going," he said, adding that a turnaround is "what I'd be looking for in terms of an earlying warning that we're starting to pull out of softness."
The consensus forecast is for a slight drop of 3,000 in weekly jobless claims, to 416,000.
Also to be released in the week, a final, revised, look at first-quarter productivity should see a larger than previously estimated decline.
The consensus forecast is for a revised 0.9 pct drop in productivity for the first quarter from the previous quarter, at an annualised rate, down from a 0.1 pct drop in the preliminary estimate. However, most analysts said this is simply a reflection of the downward revision in GDP for the quarter, and is therefore a cyclical phenomenon, rather than a sign that the strong secular productivity growth of recent years is over.
First-quarter GDP, first reported at a 2.0 pct increase, was revised to show just a 1.3 pct rise.
"I think the decline (in productivity) is cyclical. I do think the secular trend is upwards," said economist Joe Abate at Lehman Brothers, who predicted a rebound in productivity growth to 2.5 pct in the second quarter.
O'Neill agreed: "long run productivity growth is still seen at 2.5 pct, which is about the same as what we'll get year-on-year (for the first-quarter)."
"I wouldn't get overly worried about this at this point," he concluded.
The following are the consensus forecasts of Wall Street economists for indicators to be released this week:
REVISED Q1 LABOR PRODUCTIVITY, Tuesday (8.30 am): Labor productivity is expected to be revised to show a 0.9 pct drop in the final reading for the first quarter, down from a 0.1 pct decline in the preliminary estimate. This is also down from a 2 pct rise in the fourth quarter of last year.
Unit labor costs are seen growing at a revised 6 pct pace in the first quarter, up from 5.2 pct in the preliminary estimate, and up from a 4.5 pct rise in the fourth quarter of 2000.
HSBC's Morris cautioned that the inflationary implications of the strong rise in unit labor costs could contribute to restraining the Federal Reserve to a 25 basis point interest rate cut at the next policy meeting on June 26-27.
APRIL FACTORY ORDERS, Tuesday (10.00 am): Factory orders are seen falling 2.8 pct in April, after rising by 1.8 pct in March. The report is expected to reflect April durable goods orders, which fell 5.0 pct.
MAY NAPM NON-MANUFACTURING INDEX, Tuesday (10.00 am): The National Association of Purchasing Management survey of non-manufacturing business activity is expected to rise in May to 48.3 from 47.1 in April.
This is still below 50, which indicates the sector is contracting. However, economists note that other indicators of non-manufacturing activity, such as job growth in the service sector, suggest that outside of manufacturing, the US is n ot in recession, MacDonald at MMS said.
WEEKLY JOBLESS CLAIMS, Thursday (8.30 am): Initial claims for unemployment insurance are seen falling 3,000 to 416,000 in the week ended June 2, after rising by 8,000 to 419,000 the previous week. Despite the drop, analysts noted that a third consecutive week of claims above 400,000 is a sign of continued softness in the labor market.
APRIL WHOLESALE INVENTORIES, Thursday (10.00 am): Inventories at the wholesale level are expected to rise a slight 0.1 pct in April, after rising the same percentage in March.
APRIL CONSUMER CREDIT, Thursday (3.00 pm): Consumer credit is seen rising by 7.9 bln usd in April, after rising by 6.1 bln in March.
This likely expansion in credit will reflect continued increases in retail sales and overall consumer spending, Bank of Montreal's O'Neill said.