NEW YORK (
) -- Expect frenetic activity in the holiday-shortened coming week, as investors turn to a flurry of key economic data on jobs, manufacturing and the consumer for further color on the economy.
Fears of a slowdown in the global cycle and continuing worries about eurozone debt have afflicted the markets recently.
Stocks finished the week lower, with volumes thinning toward the end of the week as the markets headed into the long weekend. The
Dow Jones Industrial Average
dipped 0.6% over the week. The
slid 0.1%, and the
The market has begun to price in slower-than-expected growth in the second quarter,
as consumer spending has shown visible signs of strain amid higher gas prices. However, with oil prices retreating, economists are hopeful that the pace of economic growth will pick up in the third quarter.
Thus, investors will likely focus on forward-looking indicators that could provide signals to how the economy will fare in the second half of the year. Apart from the all-important nonfarm payrolls report on Friday, there will be a raft of numbers on consumer confidence, manufacturing, services and factory orders that should lend the markets further direction.
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Interestingly, economists point out that the Institute for Supply Management's data on manufacturing and services might actually get a lot more attention than jobs in the coming week. Manufacturing has led the economy out of the recession, but recent regional data has shown a sharp drop in activity, adding to investor jitters.
"The ISM is forward-looking, and we are all going to be wondering whether purchasing managers are reflecting a deceleration in the economy," said Patrick O'Keefe, director of economic research at J.H. Cohn. "We are not drifting into the negative territory, but we are no longer experiencing the acceleration in the economy."
O'Keefe said he will also pay close attention to factory orders, as in his view they offer a broader outlook for manufacturing that reflects both domestic and international demand.
"If the ISM is better than the last report that should give us an indication that while growth in the second quarter is not going to be all that robust -- 2.4% to 2.6% at best -- we will probably see a better third quarter," said Peter Cardillo, chief market economist at Avalon Partners.
Economists are converging on the view that the economy will muddle through in 2011, which means that economic reports will continue to provide a mixed outlook that could befuddle the market.
However, unlike the summer of 2010, the double-dip chatter is on mute. "Last year, the private sector wasn't adding jobs. It spiked in April and then fell to very low levels," said J.H. Cohn's O'Keefe. "The talk at that point was driven by a tepid rate of job expansion. A lot of that talk back then was due to impatience. Right now the economy is not tipping towards shrinkage, but the momentum has leveled off."
U.S. markets will be closed Monday in observance of Memorial Day and will open again on Tuesday, which will bring data on housing prices. The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate across 20 metropolitan regions, is expected to show a drop of 3.4% in March, after falling by a similar amount in February, according to consensus estimates from
The Chicago Purchasing Managers Index, which is a close proxy for the national ISM Manufacturing report, will also be released on Tuesday. The business activity index is projected to drop to 62.5 from 67.6 in the previous month. Readings of more than 50 indicate expansion in the economy, while readings less than 50 indicate contraction.
Also on Tuesday, the Conference Board releases its consumer confidence numbers. Consumer Confidence is expected to improve to 66.3 in May from 65.4 in April.
On Wednesday, the market gets its first glimpse into the employment situation in May with the Challenger Job Cuts Report and the ADP report on private sector jobs. The ADP is expected to say that companies added 170,000 jobs in May after creating 179,000 jobs in April.
Also on Wednesday, the ISM Index, which gauges manufacturing activity, is forecast to pull back to 57.6 in May from 60.4 in the previous month. The Commerce Department is also expected to say that construction spending fell 0.5% in May.
Investors will also be watching out for auto and truck sales numbers putting
The Labor Department is expected to say Thursday that initial jobless claims dropped in the week ended May 28 to 413,000 after spiking to 424,000 in the previous week.
Also on Thursday, the Commerce Department is likely to say that factory orders declined 1% in April after rising 3.4% in March.
On Friday, the economic reports reach a crescendo with the Labor Department releasing its nonfarm payrolls report. The pace of job creation is expected to have slowed in May, with the economy forecast to have created only 180,000 jobs after adding 244,000 in April. The report is expected to say companies hired 220,000 workers.
The unemployment rate is likely to remain unchanged at 9%. Economists believe the report may not be truly reflective of the job situation as flooding in the southern U.S. likely disrupted the employment survey.
The ISM Services Report is anticipated to show a slight uptick to 53.3 in May from 52.8.
--Written by Shanthi Bharatwaj in New York
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