Fear raged the Street most of last week, as confounding economic data weighed on the visibility into the economic horizon, and mounting debt woes of some of the European nations worried traders, prompting them to move to safe haven investments. Globally, we saw a revival in growth in the fourth quarter of 2009, although inventory rebuilding contributed much of the upside. Recent economic data has shown that the demand side of the equation is still weak, questioning the sustainability of the revival. Personal spending, which is a function of demand, could remain subdued for most of 2010, as weak income prospects and unemployment restrain spending.
However, business capital spending is improving, as companies are seeing their profits growing at a decent clip. Companies continue to boost productivity, using lean workforces to run new equipment. However, BMO Capital is of the view that business spending is unlikely to lead growth, although it could support recovery.
The jobs picture is still murky. The January non-farm payroll numbers showed that the U.S. economy lost 20,000 jobs, with the private sector shedding 12,000 jobs and the government losing 8,000 jobs. However, the unemployment rate fell three-tenths of a percentage point to 9.7%. Since the recession began in December 2007, workforce has shrunk by 8.4 million workers.
Danske Bank expects the underlying trend in employment to improve over the course of 2010, rising to be a gradual monthly increase in job growth to around 275,000 by early 2011. However, the firm believes that the hiring for Census 2010 will severely distort the monthly development in employment, with larger boost to job growth from Census workers likely to appear from March to May. The employment is expected to gradually return to the underlying trend in the months from June to November.
At the same time, the Labor Department said last week first time claims for unemployment benefits unexpectedly increased in the week ended January 30th, rising by 8,000 to 480,000. The four-week average rose for the third straight week to 468,750, its highest level since early December.
Even as the economy grapples with weak labor market, the one consolation has been the strong productivity growth that characterized most of 2009. Non-farm productivity rose by a 6.2% annualized sequential rate in the fourth quarter compared to a 7.2% increase in the previous quarter. Productivity for the whole of 2009 was up 5.1%. Unit labor costs declined at a 4.4% annualized rate in the fourth quarter and fell 2.8% for the whole of the year. The productivity growth was helped mostly by the cost cutting drive of companies. With the number of hours worked rising for the first time since the second quarter of 2007, the labor market may be positioning itself in the path of recovery.
The personal income and outlays report released last week showed that personal income rose 0.4% month-over-month in December compared to expectations for a 0.3% increase. At the same time, personal spending increased 0.2%, slightly softer than the 0.3% rate expected by economists. Consequently, the personal savings rate rose to 4.8% in December from 4.5% in the previous month. Real spending was up a mere 0.1%.
Personal income growth was supported by a reduction in personal taxes, while wages and salaries grew at an anemic 0.1% rate. The core price index for personal consumption expenditures was up 0.1% in December.
The Institute for Supply Management's purchasing managers' index rose to 58.4 in January from 54.9 in November, with the latest month's reading the highest since August 2004. Thirteen of the eighteen industries showed growth. The new orders index rose 1.1 points and the index of order backlogs climbed 6 points to 56. The employment index continued to climb, rising 3 points to 53.3. Despite increasing 3.5 points, the inventories index remained below '50' at 46.5.
Meanwhile, the services sector survey showed that the sector expanded at a slower than expected rate in January. The non-manufacturing index rose to 50.5 from 49.8 in the previous month, but came in below expectations for a reading of 51. The weakness was apparently due to soft construction and retail activity. The new orders index climbed 2.7 points to 54.7, marking the highest reading since October 2007, and the employment index was up 1 point to 44.6. However, the index of order backlogs fell 2.5 points to 45.5.
Housing reports were mixed. The National Association of Realtors reported that its pending home sales index rose 1% month-over-month in December following a 16.4% plunge in November. The indexes for the Northeast, Midwest and the South rose, but the index for the West declined.
However, the Commerce Department's construction spending report revealed a 1.2% month-over-month decline in spending for December. The previous month's drop was revised downwards to a 1.2% decline from the 0.6% drop estimated initially. Private as well as public construction spending fell 1.2% each. In the private category, multi-family house construction spending fell 4.4%, offsetting a 0.6% increase in spending on single-family homes, while non-residential construction spending edged up 0.2%.
After a busy week on Main Street, the focus now shifts to the unfolding week, with very few scheduled economic events. Nevertheless, traders, who seek increased visibility on economic recovery, are now scanning each piece of economic evidence. The Commerce Department's retail sales report for January, the weekly jobless claims report and the preliminary consumer sentiment report of Reuters/University of Michigan are likely to be on the radar in the unfolding week.
Market participants may also pay attention to the Commerce Department's trade balance report for December, a Fed speech scheduled for the week and announcements concerning treasury auctions of 3-year notes, 10-year notes and 30-year bonds. The wholesale and business inventories reports for December and the Treasury Budget are among the other reports due to be released during the week.
Retail sales are likely to show fairly decent growth in January, as some of the strength in late holiday shopping carried into January. While solid chain store sales and gasoline sales could lend some support to the headline number, weak auto sales and softness in building material sales could act as drags.
The Reuters/University of Michigan's consumer sentiment index is trending between the 65 and 75 range since last April. Given the state of the labor market, very few expect an improvement in their personal finances this year. The stock market volatility we have been witnessing in recent sessions could also impact sentiment.
Monday
There are no significant economic reports due to released on Monday.
Tuesday
The Commerce Department is due to release its wholesale inventories report at 10 AM ET. Economists expect wholesale inventories at the end of December to show a 0.6% increase.
Wholesale inventories at the end of November rose 1.5% month-over-month, although they declined 11% compared to the year-ago period. Meanwhile, wholesale sales rose 3.3% in November compared to the previous month and edged up 0.6% from the year-ago period. The wholesale inventories to sales ratio was at 1.14 compared to 1.29 in the year-ago period.
Wednesday
The trade gap data for December is due out at 8:30 AM ET. Economists estimate that the trade gap narrowed to $35 billion in the month. The trade gap measures the difference between imports and exports of both tangible goods and services.
With the value of imports increasing at a faster pace than the value of exports in the month of November, the U.S. trade deficit widened by more than economists had been expecting.
The trade deficit widened to $36.4 billion in November from a revised $33.2 billion in October. Economists had expected the deficit to widen to $34.6 billion from the $32.9 billion originally reported for the previous month.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended February 5th at 10:30 AM ET.
The oil inventory report for the week ended January 29th showed a 2.3 million barrel increase in crude oil stockpiles to 329 million barrels. Crude oil stockpiles remained above the upper limit of the average range.
Gasoline inventories decreased by 1.3 million barrels but remained above the upper limit of the average range. Distillate inventories also dropped, falling by 1 million barrels. Inventories of distillate fuel were above the upper boundary of the average range. Refinery capacity utilization averaged 79% over the four-weeks ended January 29th compared to 79.5% in the previous week.
Philadelphia Federal Reserve Bank President Charles Plosser is due to speak on lessons of the financial crisis to the World Affairs Council of Philadelphia at 12:45 PM
The Treasury Budget, a monthly account of the surplus or deficit of the federal government is due to be released at 2 PM ET. The budget is considered as an indicator of budgetary trends and the thrust of fiscal policy. Economists estimate a deficit of $60 billion for January.
Thursday
The Labor Department is due to release its customary jobless claims report for the week ended February 7th at 8:30 AM ET.
First time claims for unemployment benefits unexpectedly showed a modest increase in the week ended January 30th, with the data likely to raise some concerns about the upcoming monthly employment report.
Initial jobless claims edged up to 480,000 from the previous week's revised figure of 472,000. Economists had been expecting jobless claims to fall to 455,000 from the 470,000 originally reported for the previous week.
Retail sales of food and retail companies with one or more establishments that sell merchandise and associated services to final consumers are slated to be released at 8:30 AM ET. For January, economists estimate 0.4% growth in retail sales and the retail sales excluding autos.
In December, retail sales declined unexpectedly, with the decline being broad based seen across categories. This follows an upwardly revised 1.8% increase in November. Economists had expected sales to increase by 0.5% compared to the 1.3%increase originally reported for the previous month.
Excluding a 0.8% decline in auto sales, retail sales eased by a more modest 0.2% in December compared to the 1.9% increase in the previous month. The ex-auto sales growth came in above economist estimates of a 0.3% increase.
The Commerce Department is scheduled to release its business inventories report for December at 10 AM ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.4% increase in business inventories for the month.
In November, business inventories report showed a 0.4% gain compared to the previous month, a tad better than the 0.3% increase expected by economists. The previous month's gains were revised up to 0.4%. The second straight month of growth following 13 months of declines show that we may have reached the inflection point. At the same time, business sales rose 2%, pushing the business inventories to sales ratio down to 1.28 compared to 1.30 in the previous month.
Friday
The preliminary report of the Reuters/University of Michigan's consumer sentiment survey for February is scheduled to be released at 9.55 AM ET. The consumer sentiment index is expected to rise slightly to 74.8 from January 74.4.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.