A trickle of economic data early in the coming week will keep investors occupied but won't distract them from Friday's employment report, which should add to the existing consensus that the
likely will tighten interest rates at the two-day meeting in late June.
Nonfarm payroll growth in May is expected to come in at 215,000, which would mark three consecutive months above the 200,000 mark. Market analysts say that despite two consecutive months of blowout employment reports, May's data are just as important.
"We seem to be going nonfarm payroll report to nonfarm payroll report," said Robert Pavlik, a portfolio manager at OakTree Asset Management. "As the week goes on, more eyes will be focused in on that number and what it could potentially mean if we do surpass 215,000." The two prior reports saw April's addition of 288,000 nonfarm payrolls and March's surge of 337,000 additions.
Even though a nonfarm payroll reading of 215,000 would be a deceleration from the previous month, it will still show that the economy is humming right along, said Bill Rhodes, chief investment strategist at Rhodes Analytics. However, "I would be concerned if they came in sharply down, or if the last month got revised down."
Pavlik added that Thursday's data on factory orders and Tuesday's and Thursday's manufacturing reports should hold the market's interest before the employment data. Initial jobless claims for the week ended May 29 also will be released on Thursday; the report will give the market a taste of final May employment data. Claims are expected to come in at 339,000, compared with the prior week's 344,000. The markets are closed Monday in observation of the Memorial Day holiday.
Trading was relatively moderate in the just-completed week, as the unofficial start to summer loomed on the horizon, but it was difficult to project if that will continue into the week ahead, said both Pavlik and Rhodes. On Friday, the
closed up 2.2% for the week, while the
finished 3.9% higher and the
Several external events seemed to move to the back burner in the just-finished week, which could continue in the week ahead. President Bush's speech calmed tensions in the market that the war in Iraq was getting out of control, said Pavlik, because Bush acknowledged planning is under way to return at least some governing power to the Iraqis.
In addition, "the falling price of oil -- because of the increase in talk of supply -- certainly helped things out," said Pavlik. "If oil can continue to trend down from that $42 level, the market will be looking at a short-term positive." Oil prices fell 3% to $39.44 a barrel on Thursday and were essentially flat at that level Friday.
However, oil remains under the market's watchful eye. Oil-related concerns run somewhat in tandem with inflation worries and could possibly impact the frequency and magnitude of the Fed's interest rate decisions this year. While Pavlik believes the market has priced in a 25-basis-point increase already, he believes there will be at least three rate increases before the presidential election in November.
The Federal Open Market Committee's meeting June 29-30 is largely expected to be when interest rates will be tightened for the first time since mid-2000. Economists are widely split on how much the Fed will raise will rates at that time, though, with estimates ranging from no change to a 50-basis-point increase.
A very robust employment report Friday could cause the market to worry that interest rates could be increased 50 basis points, rather than the average estimate for 25 basis points.
"If we saw another upward revision
to April data and then saw a strong month for May ... we might get 50 basis points," said Rhodes. "The argument goes that if the Fed gave the market a 50 basis-point hike, maybe that would quell all the anxiety in the market."
In the week's other economic reports, Tuesday's construction spending data for April will be released; analysts are calling for a 0.4% increase from March's 1.5% rise. In addition, the Institute for Supply Management's report on manufacturing is expected to have a reading of 61 from 62.4 in April.
A revised reading of first-quarter productivity will be released Thursday with economists calling for a slight increase of 3.6%, from the prior reading of 3.5%. Also that day, factory orders are expected to show a 0.4% increase, compared with March's 4.3% surge, and the Institute for Supply Management's reading on nonmanufacturing is seen with a reading of 66 in May, down from a reading of 68.4 in April.
Earnings reports next week will be released by
on Wednesday. On Thursday, a deluge of monthly same-store sales results from retailers could also bring revised second-quarter earnings forecasts.