The Week Ahead: Auto Sales and Unemployment Key

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The Week Ahead

The week ahead features the bookend reporting of July Motor Vehicle Sales on Monday and the Employment Situation Report on Friday. With the "Cash for Clunkers" auto stimulus program wildly successful and set to receive a tripling of funding, sales of autos are expected to benefit through the summer. As for unemployment, well that's another story, and an ongoing drag to economic development.

Monday

Domestic automakers and a few major foreign manufacturers (read Toyota) will report July Motor Vehicle Sales during the day on Monday. The "Cash for Clunkers" program has proven wildly successful, running down the appropriated $1 billion before the November deadline. The government is sending more funds your way, and automakers are taking advantage of it. That said, based on similar results overseas, auto sales are only expected to benefit by about 500K. We expect this US stimulus will do somewhat better, but don't go looking for a huge jump in auto sales based on the Cash for Clunkers program alone. No, what should boost sales above a 10 million annual rate is the restoration of normal business conditions since the economic outlook has improved from "panic level." The return of Chrysler and General Motors (NYSE: GM) from bankruptcy certainly helps.

At 10:00 a.m., look for two important barometers of recovery in the ISM Manufacturing Index and Construction Spending Report. According to Bloomberg's survey, economists see an improvement in the rate of manufacturing contraction in July. The ISM Index is seen improving to 46.5, from 44.8 in June. Despite a lower June new order mark, inventories are reportedly tight enough to make things easy for improvement in this data point.

After a sharp retrenchment in May, Construction Spending is seen easing even further in June. Bloomberg's consensus sees spending down 0.5%, but this time around the weakness is expected to be driven by nonresidential activity. In May, the 0.9% decline was impacted mostly by 3.4% lower residential construction. Housing has since offered clear evidence of stabilization, and has even posted gains in activity.

The Treasury declares its estimated borrowing requirements for the third and fourth quarters of the year. The FDA is due to decide on Johnson & Johnson's (NYSE: JNJ) antipsychotic drug Invega. After easing listing requirements to compensate for the market wide slide, the Nasdaq OMX will reinstate its $1 minimum closing bid price rule.

Overseas, the struggling Japanese government will auction Y2.1 trillion of 10-year government bonds. Canadian markets are closed for the day.

The corporate earnings schedule includes 3PAR Inc. (NYSE: PAR), Anadarko Petroleum (NYSE: APC), Argo Group Int'l Holdings (Nasdaq: AGII), Atmel (Nasdaq: ATML), Axis Capital (NYSE: AXS), Barclays (NYSE: BCS), Brookdale Senior Living (NYSE: BKD), Carmike Cinemas (Nasdaq: CKEC), Centex (NYSE: CTX), Chesapeake Energy (NYSE: CHK), Clorox (NYSE: CLX), CNA Financial (NYSE: CNA), Cutera (Nasdaq: CUTR), Everest Re (NYSE: RE), Gladstone Capital (Nasdaq: GLAD), Humana (NYSE: HUM), HSBC Finance (NYSE: HTB), Loews Corp. (NYSE: L), Marathon Oil (NYSE: MRO), Molson Coors Brewing (NYSE: TAP), Nam Tai Electronics (NYSE: NTE), National Retail Properties (NYSE: NNN), Panasonic (NYSE: PC), Pulte Homes (NYSE: PHM), Tasty Baking (Nasdaq: TSTY), Texas Roadhouse (Nasdaq: TXRH), Tyson Foods (NYSE: TSN), Vulcan Materials (NYSE: VMC), Williams Controls (Nasdaq: WMCO) and more.

Tuesday

June's Personal Income and Consumption Report headlines the business wire on Tuesday. Due for publishing by 8:30 a.m., this data offers insight into the income and consumption condition of Americans. Bloomberg's survey of economists forecasts a 1.1% monthly income decline, compared against the 1.4% income gain in May. Both May and April were lifted by extraordinary payouts via the American Recovery and Reinvestment Act, which will not impact June. Personal Spending rose 0.3% in May, and is seen increasing an equal amount in June; this since Retail Sales rose 0.6% in June. The Core PCE Price Index is forecast to increase by 0.2% for the month, versus a 0.1% rise the month before.

Speaking of spending, weekly same-store sales jumped by 1.0% last week, according to the International Council of Shopping Centers (ICSC). However, on a year-to-year basis, sales fell by a half of a percentage point. Year-to-year comparisons have backed off since stabilizing not long ago. Two logical suspects behind the crime might be rising unemployment and the prior year stimulus issuance.

The National Association of Realtors reports its Pending Home Sales Index at 10:00. We do not have a consensus figure for the data, but we believe it's safe to say that an improvement is likely for June. Pending Home Sales inched higher in May (+0.1%) after an April spike of 6.7%.

The Senate has a busy day scheduled, making for a good ratings day for C-SPAN. The Senate Banking Committee will hear testimony of FDIC Chair Sheila Bair on the need to strengthen banking supervision. The Senate will debate the nomination of Sonia Sotomayor to the Supreme Court.

The day's earnings slate includes Acorda Therapeutics (Nasdaq: ACOR), Albany Molecular (Nasdaq: AMRI), Allied Healthcare (Nasdaq: AHCI), Archer Daniels Midland (NYSE: ADM), ArvinMeritor (NYSE: ARM), Asta Funding (Nasdaq: ASFI), Atmos Energy (NYSE: ATO), Avis Budget Group (NYSE: CAR), BMC Software (NYSE: BMC), Boston Beer (NYSE: SAM), BNP Paribas (BNP.PA), Cincinnati Bell (NYSE: CBB), Coherent (Nasdaq: COHR), Coinstar (Nasdaq: CSTR), Consolidated Edison (NYSE: ED), CVS Caremark (NYSE: CVS), D.R. Horton (NYSE: DHI), Denny's (Nasdaq: DENN), Diebold (NYSE: DBD), Duke Energy (NYSE: DUK), Electronic Arts (Nasdaq: ERTS), FTI Consulting (NYSE: FCN), Furniture Brands (NYSE: FBN), Gartner (NYSE: IT), Global Cash Access (NYSE: GCA), Henry Schein (Nasdaq: HSIC), Immucell (Nasdaq: ICCC), IntercontinentalExchange (NYSE: ICE), Jones Soda (Nasdaq: JSDA), Kindred Healthcare (NYSE: KND), Kraft Foods (NYSE: KFT), Marvel Entertainment (NYSE: MVL), Papa John's (Nasdaq: PZZA), Pioneer Natural Resources (NYSE: PXD), Sotheby's (NYSE: BID), Techne (Nasdaq: TECH), Tenet Healthcare (NYSE: THC), Toyota Motor (NYSE: TM), UBS (NYSE: UBS), Vornado Realty Trust (NYSE: VNO), Whole Foods Market (Nasdaq: WFMI), Yamana Gold (NYSE: AUY) and more.

Wednesday

The monthly employment reports begin on Wednesday with the publishing of the Challenger, Gray & Christmas Job-Cut Report and ADP's Private Employment Report. Challenger precedes ADP, but there is no consensus data available to note. Last month, the agency reported announced corporate layoffs reached a 15-month low. June's 74,393 planned firings also compared favorably against May's 111,182.

ADP's Private Employment Report should show improvement, but be careful, because it only measures the private sector. Private sector bleeding seems to be slowing, as indicated by the improving trend at Challenger. However, as state and municipalities deal with tightening budget constraints, public layoffs are rising. Those will be captured in the federal government's Employment Situation Report on Friday, but be missed by ADP's data count. June's numbers showed the private employment market contracted by 473K jobs, which compared against May's revised total of 485K jobs lost. We see the improving trend continuing through July, and stocks might get a lift if the number slips significantly enough to ease concerns about public sector job losses.

Last week's Mortgage Activity data showed impact from the prior week's jump in contracted 30-year fixed rate mortgages. With a slight increase in rates in the most recently reported week as well, the Market Composite Index of mortgage activity skidded 6.3% on a Refinance Index drop of 10.9%. The good news was that Purchase Activity held steady. We look for similar news this week.

At 10:00 a.m., look for Factory Orders and ISM's Non-Manufacturing Report. The consensus of economists surveyed by Bloomberg anticipates a shift for June's Factory Orders, seeing a 0.9% contraction (Barron's shows consensus at -0.5%), versus May's 1.2% gain. Durable Goods are seen as the culprit, but with housing and the auto sector flat to higher in recent weeks, this trend must change. The market may overlook negative news on this data point as a result.

ISM's measurement of the service sector is probably more important that its more widely followed manufacturing sector report, since the service sector of our economy is vastly larger than manufacturing. The report showed significant improvement in June, though still noted economic contraction with a reading of 47 (up 3 points). Economists foresee further gains in July, to a level of 48.2. Anecdotal evidence seems to agree, in our view.

In government news, the Senate Banking Committee keeps busy, this day taking up debate on the regulation of credit agencies. The EIA reports weekly Petroleum Status at 10:30. Last week's report noted a sharp increase of 5.1 million barrels of oil in inventory reserves. Gasoline stocks, however, saw a draw of 2.3 million barrels.

The earnings schedule includes 99 Cents Only (NYSE: NDN), Agrium (NYSE: AGU), American Axle (NYSE: AXL), Aqua America (NYSE: ATR), Baker Hughes (NYSE: BHI), Boyd Gaming (NYSE: BYD), Cisco Systems (Nasdaq: CSCO), Corrections Corp. (NYSE: CXW), Dean Foods (NYSE: DF), Devon Energy (NYSE: DVN), Eagle Bulk Shipping (Nasdaq: EGLE), Fortress Investment Group (NYSE: FIG), Foster Wheeler (Nasdaq: FWLT), Garmin (Nasdaq: GRMN), Given Imaging (Nasdaq: GIVN), Healthsouth (NYSE: HLS), Imperial Sugar (Nasdaq: IPSU), Marsh & McLennan (NYSE: MMC), News Corp. (NYSE: NWS), Overseas Shipholding (NYSE: OSG), Owens Corning (NYSE: OC), Petrobras (NYSE: PZE), Procter & Gamble (NYSE: PG), Prudential Financial (NYSE: PRU), Safeguard Scientifics (NYSE: SFE), Service Corp. (NYSE: SCI), Sunoco (NYSE: SUN), Allstate (NYSE: ALL), Tsakos Energy (NYSE: TNP), Vonage (NYSE: VG), XTO Energy (NYSE: XTO) and many more.

Thursday

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