One day ahead of the all-important Nonfarm Payrolls report for May, the focus is on speeches from Federal Reserve officials, overseas policy, and Treasury auctions.

The weekly Jobless Claims report for the final week of May is expected to show 620,000 new filings for unemployment benefits. It’s safe to say an outlier figure will be considered a blip due to the four-day week from Memorial Day. Continuing Claims have have been setting record highs one week after the next and this report is unlikely to be an exception.

The only other data coming out are some revisions to the Q1 Productivity and Costs report. The consensus looks for nonfarm productivity to rise 1.2% and unit labor costs to rise 2.8%.

Three central bank officials give their assessment of the where the economy is heading today. At 7:50, Cleveland Fed President Sandra Pianalto speaks to INVESTKentucky, followed by a Q&A. Ten minutes later, New York Fed President William Dudley speaks to the SIFMA conference in New York.

At 8:45, Chairman Ben Bernanke gives opening remarks to a central bank conference on financial markets and monetary policy. It’s unlikely Bernanke will expand on yesterday’s dour speech, but markets will be watching for anything new. A Q&A session isn’t expected.

Markets will also be busy watching for earnings announcements from chain stores all day long.

At 9 am Treasury holds an auction for 30-year bonds; at 11 am 3-month, 6-month, and 3-year notes will be auctioned off.

In a good follow up to Bernanke’s speech yesterday, the New York Times offers an article on why it’s troublesome that longer-term interest rates are rising: Rising Interest on Nations' Debts May Sap World Growth

Outside the U.S., policy announcements are expected from the Bank of Canada, the Bank of England, and the European Central Bank.

The economy is still losing jobs at a rapid pace for the month of May according to the ADP Employment Survey released today. It said that 532,000 jobs were lost in May. 

The report came in slightly worse than expectations. Addtionally, data from April report was revised down by 45,000 to show a monthly loss of 545,000.

The ADP press release said that April and May compare favorably to the first three months of the year which showed an average job loss of $691k a month, but that the labor market will continue to show significant losses in the coming months.

“Despite some recent indications that economic activity is stabilizing, employment, which usually trails overall economic activity, is likely to decline for at least several more months, although perhaps not as rapidly as during the last six months,” a press release stated.

Employment in the service sector fell by 265,000 in May, while the goods-producing sector declined by 267,000 jobs. Manufacturing saw its 39th consecutive monthly decline was 149,000 jobs vanished from the sector.

Medium-sized businesses were the hardest hit with a decline of 223,000, while businesses with fewer than 50 employees saw 209,000 jobs lost, and businesses with more than 500 workers watched as 100,000 disappeared.

Construction jobs fell for the 28th straight month as 108,000 jobs were shed, and another 32,000 jobs were cut from the financial services industry.

Looking ahead to Friday’s official NonFarm Payrolls report, economist Millan Mulraine from TD Securities said the ADP figures were consistent with the official statistics showing a print of -470,000, as government hiring is supposed to have created 70,000 jobs in May.

A forward-looking index of housing demand surged well beyond expectations in April, leading markets to shoot up half an hour into the open.

The Pending Home Sales Index ― which looks at contracts that have been signed, but not finalized ― shot up 6.7% in April, far above the +0.5% consensus expectation, and following a 3.2% gain in March.

“Record low mortgage interest rates boosted pending home sales for the third consecutive month, with some benefit now from the first-time buyer tax credit,” said the press release from the National Association of Realtors.

Since April 2008, the index has improved 3.2%, indicating that claims of housing market stabilization could be justified. In addition to housing, the index is valuable in measuring general momentum in the economy.

“This is yet another positive indication that the bottoming process is forming,” said Jennifer Lee from BMO Capital Markets. “Now if only prices would stabilize.”

Looking ahead, NAR chief economist Lawrence Yun said signings should increase over the summer and into the fall. 


“Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market,” he said. “Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.”

Regionally, results were mixed, led by a whopping 32.6% monthly advance in signings in the Northeast. The Midwest saw a 9.8% gain, and the West saw a rise of 1.8%. In the South, signings edged down 0.2%. 

On another positive note, the report said the Housing Affordability Index rose to its second highest monthly reading on record.

Pending home sales month over month are up 6.7% this morning which is much better than .5% the market was expecting. This has caused the yield on the 10 year treasury to reverse and start going back up this morning. Not good for mortgage rates.

So far this morning, we have given back half of Friday's gains after better than expected economic data.  The week ahead is packed with economic reports to digest with the highest impacting report scheduled to be released on Friday: The Employment Situation Report.
 

 -           Personal Income and Outlays report which provides us data on the dollar value of income received from all sources and consumer purchases of durable and non durable goods, and services.  Last month, both income and spending  declined from the prior month by -0.3% and -0.2% respectively.  Economists surveyed are expecting continued declines with income and spending both expected to drop an additional -0.2%.  Since consumer spending is the lifeline of our economy, it will be very difficult for our economy to recover until spending picks up.   Personal income came in much higher than expected at a 0.5% increase but it did not lead to much more spending with the outlays coming in at a -0.1%.  It appears that the sharp jump higher in income is being attributed to increased government social benefits including unemployment insurance.  Consumer optimism is picking up, income is moving higher but spending is still lagging.  Imbedded within this report is a measure on inflation with the Personal Consumption Expenditure index.  The core PCE index came is higher than expectations at a month over month increase of 0.3% following last month’s 0.2% increase.   This places year over year core PCE at 1.9%.  With oil continuing its move higher, currently up more than a dollar to $67.50 a barrel, let’s hope that the inflation genie is not out of the bottle yet.  The 1.9% year over year reading is within the Fed’s comfort zone but rising oil prices will continue to apply pressure on consumer goods to move higher in price.   High unemployment should contain inflation for now but we do have a couple months in a row of higher than expected month over month increases in inflation.  Following the release, MBS have moved considerably lower in price giving back half the gains from Friday.

-          ISM Manufacturing index which gives us a measure of the strength of the manufacturing segment of our economy.   This is a survey of more than 300 manufacturing firms on employment, production, new orders, supplier deliveries and inventories.   Readings above 50 indicates growth in manufacturing, readings from 43 to 50 indicates that the economy is growing even though manufacturing is contracting and any level below 43 indicates the economy is in recession.   Last months’ report came in much better than expected rising from 36.3 to 40.1 which helped to spark the optimism that the recession is nearing its end.   Economists’ expectations are for continued improvement to a reading of 42.0 and the actual report came in at 42.8.  Following the release of this better than expected data and the construction data,  MBS have now given back all of Friday’s gains.

-          Construction spending which is the dollar value of new construction activity on residential and non residential projects.  Rising construction spending is a key indicator of a growing economy since businesses tend to only build new factories when they are confident that the economy is healthy enough to justify the expansion.    Construction spending for March rebounded to a surprising 0.3% increase but expectations are for a sharp decline to -0.8% for April.   The release has come in much higher than expected at a month over month increase of 0.8%. 

Tuesday

-           Pending Home Sales Index will be released by the National Association of Realtors.   This index is a leading indicator of  housing activity in the existing home sales market.  A pending sale is one in which a contract has been placed on a home but the sale has yet to close.   Strong housing demand is viewed as a huge positive for economic growth due to a person would have to feel very positive about their own financial position to buy a home.   In addition, high housing demand usually leads to other purchases such as appliances, flooring, window treatments, etc… which leads to higher sales of goods and services.

Wednesday

-           Weekly Mortgage Bankers’ Applications Index. This data set measures new applications at mortgage lenders. This report gives investors a gauge into demand for housing which has a big impact on economic momentum.   Higher demand for housing usually leads to higher demand for many products to fill the home thus the stock market generally rallies with a improving number.

-      Factory Orders which represents the dollar value of new orders for both durable and non durable goods.  An increasing number suggests economic momentum and is seen as a positive for stocks and a negative for MBS.      Last month’s report came in at a decline of -0.9% and economists’ surveyed are estimating a sharp rebound to an increase of 1.1%

 -     ISM Non-Manufacturing Index which gives us a measure of the strength of the non manufacturing segment of our economy.  Last month this index rose to 43.7 and economists surveyed are expecting continued  improvement with a  45.0 reading.   This index is compiled by surveying 400 firms across the US.

Thursday

-          Jobless Claims, expectations call for 620,000 filers for first time unemployment insurance following last week’s 623,000.   The bigger concern is the continuing claims, which is the number of citizens who continue to file for unemployment insurance, which has set a record week after week and is currently over 6.6 million.    A higher than expected number would be a positive for MBS and mortgage rates.

-          Productivity and Costs measures the growth of labor efficiency and unit labor costs.   An efficient labor force can help contain inflation by lowering unit labor costs.  If a company can produce a higher  amount of goods and services, with the same labor force, that helps to keep prices and inflation down.

-          We also get an announcement from the Treasury Department regarding the total amount of Treasuries that will be auctioned at the next auction.  The added supply of debt will apply pressure on treasury and MBS yields to rise.   Currently the yield on the benchmark 10 year treasury note is at 3.65%.  Our government needs to issue more treasuries to fund the ever increasing spending.

Friday

-          Employment Situation which is the highest impacting economic report we receive on a monthly basis.  Higher unemployment leads to less consumer spending and less pressure on wages so it is positive for MBS and lower rates when unemployment is high.   Economists’ surveyed are expecting the number of jobs lost from last month to be at 530,000 following the April’s loss of 539,000.  It is also expected that the unemployment rate will move from last month’s 8.9% to 9.2%.   In a sign of optimism for our economy, March’s job loss total was 699,000 so we are seeing some improvement in the amount of jobs lost.   If this report comes in better than expected, the stock market will probably continue to move higher as investors sell their fixed income investments to move their cash into higher yielding equities.