By Theresa Sheehan

PRINCETON (SMRA) – The week ahead has two high points: the July
employment report Friday, and the Treasury’s quarterly refunding package
Wednesday.

NOTE: At time of writing, the impasse over raising the debt ceiling
has not been resolved. If it is not, the U.S. government and the Federal
Reserve will have to implement contingency plans. Even so, there would
likely to be disruptions in financial markets with long-term
consequences for underlying conditions for the economic recovery.
However, there is still time to avert a crisis. At this point we address
the weekly outlook from that perspective. In any case, the economic data
will be the same whether the debt limit is adjusted or not.

There are a number of major central bank monetary policy
announcements on the calendar. The Federal Open Market Committee meeting
is not until the following week. The coming week includes the
traditional press blackout period for one week in advance of Committee
discussions.

The second quarter earnings season continues with a large number of
releases on the calendar. These will include a number of companies in
the insurance industry and from utilities providers.

The report on the employment situation in July Friday at 8:30 ET
may answer the question as to whether the slowing in economic activity
was temporary or will persist as the summer progresses. After two months
of quite disappointing numbers, payrolls are expected to show more
substantial gains. However, these are still going to be consistent with
subpar increases for this stage in a recovery. The unemployment rate
probably will not reflect any fundamental improvement.

Labor market data in the days leading up to the employment report
will include the ADP National Employment Report for July at 8:15 ET
Wednesday. The data did a good job signaling the size of the change in
payrolls in May, but missed big in June. As a result, analysts will be
cautious in taking the ADP report at face value.

The Challenger report on layoff intentions in July at 7:30 ET
Wednesday will probably take a turn higher. A few companies — among
them Goldman-Sachs, Credit Suisse, HSBC, Cisco and Lockheed Martin —
have made some big announcements this month. Government layoffs also
continue as state and local authorities are still cutting budgets.
However, some of these will be in the form of positions not filled and
voluntary retirements, and some will happen over a period of months.

The Monster Worldwide Employment Index for July will be released in
the early hours on Thursday morning. The index has made some steady
gains for most of the last six months. The reading of 146 in June was
the highest since 150 in October 2008, and index levels are moving above
those that marked the trough of the recession. There is still a way to
go before returning to pre-recession conditions.

Initial claims for the week ended July 30 at 8:30 ET Thursday
should show that levels remain somewhat elevated, but are starting to
move lower. However, recent layoff announcements in some industries
suggest that claims levels are going to remain high for some time yet.

The ISM indexes for manufacturing and non-manufacturing for July
are at 10:00 ET Monday and Wednesday. The performance for some of the
regional surveys of factory activity in July sent mixed signals, but on
balance it looks like manufacturing is starting to regain its footing.
The available data for service sector revenues also suggest that
non-manufacturing activity will start to look a bit firmer as the second
half of 2011 starts off. Still, there is room for improvement in both
sectors.

Factory orders in June at 10:00 ET Thursday will probably look soft
after the disappointing 2.1% decline in new orders for durable goods was
reported. Prices are starting to creep up for petroleum again, and that
should lessen the size of the decline for the factory sector as a whole.
However, the softness in durables orders was mainly in transportation,
and in that category in civilian aircraft. July could bounce back as new
orders that were not book in June reach the data.

Personal income and spending for June at 8:30 ET Tuesday is likely
to reflect the near-stagnation in growth in wages and salaries, as well
as some softness in consumer spending for the month. Expenditures could
be restrained by some lower buying of motor vehicles, less demand for
services, and declines in prices of gasoline. The PCE deflator should be
consistent with the changes in the CPI that indicate some modest pickup
in inflation compared to a year-ago. Note: normally the report on
personal income and spending is released one business day after the GDP
report, except in late July/early August when it is a two-day gap.

Construction spending for June at 10:00 ET Monday will not have
much new to say about residential building, although it will be possible
to discern if consumers are making upgrades to homes. Public spending on
building projects will also be a fresh piece of data.

Consumer credit for June at 15:00 ET Friday should be consistent
with continued reluctance on the part of consumers to take on more
credit, and borrowers to provide it. The exception will probably be in
lending for motor vehicles.

Sales of domestically produced motor vehicles for July will be
released as available on Tuesday. Better inventories for passenger cars
will likely boost sales in that category, while demand for larger light
trucks, minivans, and SUVs will be restrained due to a preference for
more fuel-efficient vehicles.

Same-store sales comparisons for fiscal July will be reported on
Thursday. Demand for summer merchandise like clothing and home cooling
appliances during the current widespread hot weather may help boost
sales at some retailers. It will also reduce inventories of seasonal
merchandise which may in turn lead to less clearance discounting in
August. However, it will also mean that early fall merchandise sales
will be slow, at best.

Several major central banks will make routine monetary policy
announcements.

The Reserve Bank of Australia will release its statement in the
overnight hours of Monday-Tuesday. The Bank’s policy is currently on
hold.

The Bank of England’s Monetary Policy Committee meets in a two-day
session on Wednesday and Thursday. Its statement is expected around 7:00
ET Thursday, and it is not expected to change the current overnight rate
of 0.50% or the level of assets purchased at GBP 200 billion.

The ECB Governing Council will release its decision at around 7:45
ET Thursday. It is possible there will be another hike to the current
refi rate of 1.50%, most probably 25 basis points if the Bank opts to
increase the rate.

The Bank of Japan’s Policy Board meets Thursday and Friday. No
change is expected in the current highly accommodative policy.

The FOMC meets next Tuesday, August 9. The traditional blackout
period in advance of a Committee meeting will be in place starting
Tuesday.

The US Treasury will make its quarterly refunding announcement on
Wednesday at 9:00 ET. It will include new 3- and 10-year notes, and new
30-year bonds. However, there is a lot of uncertainty about what the
Treasury will say about its intentions if the debt limit is not
addressed in time. The same applies to the borrowing requirements set
for release on Monday at 15:00 ET.

Release of earnings reports for the second quarter will be quite
brisk for this week. This week’s reports cover a number of sectors.
Foremost among them are probably those in the insurance industry and
utilities companies.

** Stone & McCarthy Research Associates **

[TOPICS: M$$FI$,M$U$$$,MAUDS$]