Through thick and thin, U.S. consumers seem to keep spending. Despite a housing recession and rapidly rising food and energy costs, spending adjusted for inflation so far this year has grown at an annualized pace of 2.6%. The reason: a steady labor market has given people the means and the confidence to hit the malls in spite of all the bad news.
Now, there are fresh doubts about how solid the labor market will remain. Economists expect November payrolls to increase by just 87,000, or about half the gain in October. So far, job losses are centered in the residential construction, other housing related areas and manufacturing. In the service sector, hiring has held up fairly well, although the pace of job growth has ebbed. However, with businesses feeling and acting less confident about economic and financial conditions, a broader slowdown in overall hiring is likely.
The November reports on manufacturing and service sector activity from the Institute for Supply Management are expected to show further deterioration in conditions. The October factory report came in at 50.9%, the lowest level since March, when manufacturers were just getting out from an inventory overhang that built up in late 2006. What's more, the production component fell to 49.6% in October. A reading below 50% implies a decline in factory output. Among non-manufacturers, overall conditions look more favorable, although fewer respondents say they are adding workers.
On top of these figures, initial jobless claims have once again crept higher. This has happened before with weekly claims levels quickly receding. But the lack of strength in other economic numbers heightens the importance of jobless claims data as a possible leading indicator for the labor market. If the weekly tally increases above the latest reading of 352,000, it will make economists nervous.
If businesses do pull back on hiring out of caution about the economic prospects, or an inability to expand due to tighter credit conditions, it will have a negative impact on consumers. Not only would it mean fewer new jobs, but it would limit increases in wages. In turn, it would provide less financial fuel to consumers to keep the economy cruising along.
Here's the weekly economic calendar, from Action Economics.
Economic Reports
Report
Date
Time
For
Median Estimate
Last Period
ISM (manufacturing)
Monday, Dec. 3
10:00 a.m.
November
50.3
50.9
Nonfarm Productivity (revised)
Wednesday, Dec. 5
8:30 a.m.
Q3
5.3%
4.9%
Unit Labor Costs (revised)
Wednesday, Dec. 5
8:30 a.m.
Q3
-0.8%
-0.2%
Factory Orders
Wednesday, Dec. 5
10:00 a.m.
October
0.3%
0.2%
ISM (non-manufacturing)
Wednesday, Dec. 5
10:00 a.m.
November
54.9
55.8
Nonfarm Payrolls (thousands)
Friday, Dec. 7
8:30 a.m.
November
87
166
Manufacturing Payrolls (thousands)
Friday, Dec. 7
8:30 a.m.
November
-15
-21
Unemployment Rate
Friday, Dec. 7
8:30 a.m.
November
4.7%
4.7%
Average Hourly Earnings
Friday, Dec. 7
8:30 a.m.
November
0.3%
0.2%
Hours Worked
Friday, Dec. 7
8:30 a.m.
November
33.8
33.8
University of Michigan Consumer Sentiment Index (preliminary)
Friday, Dec. 7
10:00 a.m.
December
76.0
76.1
Consumer Credit (billion)
Friday, Dec. 7
3:00 p.m.
October
$5.5
$3.7