The Coming Week: Run-Up to Jobs Data

A huge dose of economic data will deluge investors.
By Meredith Derby ,

Investors' concerns will oscillate between whether the economy is too weak or too strong in the coming week, before Friday's employment report answers the question for them.

"People get upset when the numbers are not where they're expected to be," said Bill Rhodes, chief investment strategist at Rhodes Analytics. "Anything that would make us believe the economy is slowing down would be the worst thing for the equity market."

On the other hand, "Things that make you think the economy is speeding up might put pressure on interest rates," also a potential negative for stocks.

The prevalent debate will be whether the market is correcting. While Rhodes called it a "short-term or intermediate-term bearishness," David Briggs, head trader at Federated Investments, believes the recent decline is meaningful.

"The market is correcting here," Briggs said. "The

Nasdaq

can't get any momentum." Meanwhile, the

S&P 500

can't get past the 1150 mark, he said.

The Nasdaq last closed off 0.4%, marking its sixth-consecutive down week. The S&P 500 was flat and the

Dow

closed the week off 0.3%.

"The market is digesting its gains from last year," said Briggs. "There's not a lot of follow-through. It's hard to get excited." Still, he is optimistic about the large amount of cash coming into the market, which should carry it until May, though he thinks minus a huge rally.

The economic onslaught begins Monday before the bell when January's readings on personal income and consumption will be released. "Those numbers will be important because it would be alarming to see if consumer spending begins to drop," said Rhodes. Analysts have forecast a 0.5% increase in personal spending, compared with December's 0.2% increase; consumption is seen as up 0.4%, after a 0.4% increase in the prior month.

In the same vein, Rhodes said he is interested to see Friday's consumer credit reading. He believes that although consumer spending is up, people also have been able to pay down credit card debts, helped by refinanced home loans.

"Normally you would expect to see consumer credit rising larger than consumer income as you come out of recession," Rhodes said. But that hasn't been the case.

"We're seeing that in an economy like this, with these kinds of debt loads, it probably indicates that people are paying down debt by refinancing. That's a really smart thing."

Analysts foresee consumer credit in January dropping to $5.5 billion, from $6.6 billion in the prior month.

Then there's the question of fourth-quarter productivity, which will be released on Thursday. Analysts forecast a 2.6% increase for the revised reading, compared with the quarter's preliminary reading of up 2.7%. Either way, the fourth-quarter data should greatly contrast with the third quarter's 9.4% surge.

The last of the major reports will be Friday's employment data for February. All eyes will be on the nonfarm payrolls, which surprised the market when January's number came in much lower than expected. Analysts currently expect 135,000 new nonfarm jobs, compared with 112,000 in January. The unemployment rate is expected to stay at 5.6%.

The jobs figures "continue to be disappointing numbers," said Briggs. "If this market is going to gain its footing, it's got to have that employment number."

The Institute for Supply Management's report on manufacturing will be released on Monday, and its report on nonmanufacturing on Wednesday. Rhodes believes investors will get cranky if each figure comes in below consensus. The manufacturing report is expected to have a reading of 62 from the prior month's 63.6, while the nonmanufacturing report is seen at 64, also down from January's reading of 65.7.

Meanwhile, the previously delayed release of the government's January Producer Price Index, initially scheduled for Feb. 17, might be released next week. Both Rhodes and Briggs expect there could be upside to the reading. Rhodes noted that the delay is because the Department of Labor is moving to a new statistical classification, which he said "has the potential to create surprises."

Briggs agreed. "It could be a shocker if we do get any rise to it," he said. "Inflation is under control, everyone is saying, but local taxes have gone up. There seems to be inflation out there. If we do get confirmation

in the PPI numbers, that could move the market."

Analysts had been expecting the PPI to increase 0.4%, compared with December's increase of 0.3%, with the core PPI, which excludes food and energy, to increase 0.1%, from December's drop of 0.1%.

In other economic reports, on Monday, construction spending for January is set to increase 0.3% from the prior month's 0.4% increase. Factory orders, which often cause volatility in the market, will be released on Thursday, with economists predicting a 1.1% increase on top of the prior month's 1.1% increase.

Federal Reserve

Chairman Alan Greenspan will speak in New York on Tuesday at a luncheon for the Economics Club. And on Wednesday, the Fed will release its report on economic conditions.

What little earnings reports come out next week are expected to continue the largely positive picture. "If you look at earnings in aggregate, you still have strong revenue growth," said Rhodes. "The other thing is that you have improving margins. Costs are still under control."

Look for earnings reports from

Hovnanian

(HOV) - Get Report

on Monday;

Cablevision

(CVC)

and

B.J.'s Wholesale Club

(BJ) - Get Report

on Tuesday; retailers

Chico's FAS

(CHS) - Get Report

,

Costco

(COST) - Get Report

, and

Saks Fifth Avenue

(SKS)

on Wednesday; and

Staples

(SPLS)

on Thursday.

Loading ...