The Day Ahead: Labor Data Dominates Headlines. Treasury Announces Refunding Package

News from the labor market dominates the data front for the next few days, beginning with the ADP private employment report early this morning. 

The survey, just released, indicated that 371k private jobs were lost in July, a harsher figure than the -300k median forecast, but an improvement from the -463k print in June.

“Despite recent indications that overall economic activity is stabilizing, employment, which usually trails overall economic activity, is likely to decline for at least several more months, albeit at a diminishing rate,” noted spokesman Joel Prakken.

Ian Shepherdson, economist at High Frequency Economics, said the ADP survey was a worthy guide in June but that’s not to say it will be accurate this month. “Unfortunately there is no guarantee of a repeat performance in July; the medium-term correlation between ADP and the official numbers is good, but it can be very wrong in individual months,” he said.

Forecasts for the official figures on Friday look for total employment to fall 300k, but some analysts may revise their estimates lower following the ADP release.

Just prior to the release, equity futures were roughly flat, but stocks have seen a modest pullback since 8:15. Still, there’s other reason for optimism.

“The market looks to extend a four-day winning streak and consolidate above the 1,000 level,” said Sal Guatieri from BMO Capital Markets, prior to the ADP release. “Stronger-than-expected U.K. data and growing odds that the Senate will pass an expanded ‘cash-for-clunkers’ program are also buoying investor spirits.”

The S&P 500 closed above the 1,000 mark on Monday for the first time since October.

Key Releases Today:

9:00 ― Treasury announces third quarter refunding package.

Expectations are for a $75 billion package. Refunding expected to consist of  $37 billion 3 year notes, $23 billion 10 year notes, and $15 billion 30 year bonds.  A $75 billion refunding package ($4 billion more than $71 billion in May) would raise about $14 billion in new cash for Treasury. 

10:00 ― Even though the ISM Non-Manufacturing Index reports on the services, financial, and construction industries, which together make up more than two-thirds of the economy, it receives less attention than its cousin index released two days earlier. But with a median forecast at 48.0, expectations are higher for this index, and if it breaks past the 50 barrier then the report could garner more attention than usual.

“Ahead of Friday’s jobs report, the employment subindex of this survey will likely be watched as closely as the headline,” said analysts from RDQ. “We expect that, similar to the manufacturing counterpart, this survey will show an easing in the pace of decline in activity in the nonmanufacturing sector.” 

10:00 ― Factory Orders, an index tracking orders for durable and nondurable goods, jumped 1.2% in May, but much of that is expected to be lost in June as the median forecast projects a 0.9% decline. A preliminary report on durable goods orders for June saw a steep 2.5% slide, so only big revisions could prevent a negative headline.

Analysts at BMO look for a 0.5% fall in June, but note that the third quarter is looking better. “The main takeaway is that orders are stabilizing, signaling a possible end to the previous year’s wicked downdraft in business capex,” they wrote in a client note this morning.