By Theresa Sheehan

PRINCETON (SMRA) – The week ahead will see the end of the second
quarter 2011, and although there may be some upside surprises, on
balance the second quarter will probably be most notable for slower
activity in housing and softness in the labor market, while prices
showed signs of holding at more elevated levels.

The week leads up to the three-day holiday weekend for Independence
Day the following Monday. There is no early close to the bond market
Friday. However, offices will likely empty out as soon as the morning’s
data is out of the way.

There is a fair amount of data on the economic calendar next week,
but little that will seem urgent, especially since very little of this
data will feed into expectations for the nonfarm payrolls report on July
8. The payroll survey week fell relatively late in June on the 18th,
which means the employment numbers will not be out until the second
Friday of July on the 8th.

Probably the highlight of the week will be the ISM Manufacturing
Index for June at 10:00 ET Friday. The general tone of the reports
released so far this month from various regional Federal Reserve banks
and regional purchasing managers indexes indicate that the factory
sector continues to feel the impacts of supply chain disruptions and
severe weather.

The national index is likely to be of a piece with the regional
data. The question is whether this will persist into July.

There are three Fed District Bank surveys of manufacturing
scheduled for the coming week that will firm up expectations for the ISM
report. All come on the heels of soft reports from the New York and
Philadelphia Districts.

The Dallas Fed’s Texas Manufacturing Outlook for June is at 10:30
ET Monday. Of all the District Bank surveys, this is likely to be the
most positive in tone. Anecdotal evidence from the Beige Book and
remarks by Dallas Fed President Fisher indicate that economic activity
has picked up in this District, in contrast to the more moderate
outlooks in the other 11 Bank regions.

The Richmond Fed’s Survey of Manufacturing for June at 10:00 ET
Tuesday will be watched as a bellwether of other manufacturing reports.
Last month the Richmond report’s general activity index slipped back to
a negative reading for the first time since September 2010. However, the
Richmond number tends to lead the other District Bank outlooks. If it
turns higher, it may be consistent with the view that temporary
conditions led to a brief slowdown in manufacturing. If it holds in
contraction territory, it will raise the possibility that the current
slowdown will be more sustained.

The Kansas City Fed Manufacturing Survey is at 11:00 ET Thursday.
Although not widely followed, it will help complete the picture of
activity in the factory sector.

The index from the Chicago Purchasing Managers is scheduled for
9:45 ET Thursday. The index has been on a slowing trend for the last
three months, and June could show a further moderation. Still, the index
is coming off of unusually strong readings, and it should continue to
indicate expansion.

The S&P/Case-Shiller Home Price Index for April will be reported at
9:00 ET Tuesday. The FHFA House Price Index showed further drops in
home values, and the more closely-watched Case-Shiller index will
probably do the same.

Fed Chairman Bernanke’s remarks on June 22 suggested that declines
in home values were due to a concentration of distressed properties, but
that will be little consolation to mortgage holders and lenders, or help
encourage homebuyers to enter the market.

At the briefing on sales of existing homes on June 21, the NAR’s
chief economist indicated that the May data for the Pending Home Sales
Index at 10:00 ET on Wednesday should signal an upturn in home purchases
in the coming months. If so, it would be the first solidly good news for
the housing market in a while.

The report on construction spending in May at mid-morning Friday
could have some more upbeat numbers to offer regarding new commercial
and public construction, and for home repair and renovation. However,
construction of residential properties is going to remain sluggish.

The numbers for personal income and spending in May at 8:30 ET
Monday are likely to remain lackluster as wages gains were modest for
the month, and consumers were cautious in their expenditures.

The monthly data for consumer confidence in June will be complete
next week after the release of the Conference Board’s Consumer
Confidence Index at 10:00 ET Tuesday and the final read on the
Reuters/University of Michigan Consumer Sentiment Index at 9:55 ET
Friday. It is possible the respective indexes will reflect slightly
higher consumer attitudes towards the end of the month as gasoline
prices slipped a bit, and conditions in the labor market looked less
uncertain.

Initial claims for the week-ended June 25 Thursday morning will
probably remain somewhat elevated, but continue to move lower, if
unevenly. The June 18 week was the survey comparison week, and the Labor
Department said it had to estimate claims levels from six states due to
technical factors. Claims levels are usually revised in the prior week,
but the estimates mean that it is possible that the increase of 15,000
from the May 14 survey week could see a larger revision than normal.

Automakers will release the numbers on June sales of North
America-produced motor vehicles Friday. With gas prices remaining at
elevated levels, consumers are going to want more fuel-efficient
passenger cars, which will likely be in limited supply. This may
restrain overall levels of sales.

There are no major central bank announcements on the calendar this
week. The pace will pick up in the subsequent week with routine
statements from the Reserve Bank of Australia, the Bank of England, and
the European Central Bank.

Federal Reserve officials return to making public comments after
the end of the press blackout period around an FOMC meeting. There
probably will not be anything fresh in the remarks currently scheduled
from Minneapolis’ Narayana Kocherlakota (Monday), Kansas City’s Thomas
Hoenig (Monday and Thursday), Dallas’ Richard Fisher (Tuesday), or St.
Louis’ James Bullard (Thursday).

Thursday, the St. Louis Fed holds a conference on quantitative
easing, and Bullard’s scheduled press availability in the afternoon may
have something to add on the topic of the Fed’s Large Scale Asset
Purchase program. The LSAP officially ends on Thursday, June 30, the end
of the second quarter.

The U.S. Treasury will auction new 2-, 5-, and 7-year notes on
Monday, Tuesday and Wednesday, respectively. These will settle on June
30. No new coupon offerings are scheduled to be announced until the next
leg of the refunding package on July 7.

The Treasury is currently using extraordinary measures to keep the
debt from breaching the statutory limit. This may have an impact on the
announced sizes of the offerings of bills and/or coupons in the coming
weeks.

** Stone & McCarthy Research Associates **

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