It's Jobs Week In America - Here's Your Complete Preview

Meanwhile, stocks continue to close at all-time highs, interest rates continue to tumble to lows of the year, and inflation continues to heat up.

There's lots to talk about.

Here's your Monday Scouting Report:

Top Story

• On Housing: The U.S. housing market has been lackluster lately. Some blame deteriorating demand. Some blame tight supply. Whatever the reason, activity has been slowing.
  
  But not so much that it'll derail the Fed's plans to taper quantitative easing and eventually tighten. Here's UBS's Maury Harris: "We think the Fed generally is more focused on the overall economy than on housing in particular. If the economy can still grow satisfactorily even with a sluggish and somewhat disappointing housing recovery, that outcome should be acceptable to the Fed. Single-family home sales and starts may remain soft but there still have been positive housing-related impacts from the apartment rental boom and recovering home prices. Moreover, Fed policymakers surely must understand there is not much they can or should do with respect to bringing back subprime mortgage lending, whose absence is restraining housing."
• On Renting: The shift toward renting versus buying has resulted in demand for more multi-family buildings than single-family homes. Harris discussed how this was impacting the economy: "To be sure, building a new single-family home adds more to the economy than the recent alternatives of building apartments or remodeling. For instance, each single- family home built adds approximately three jobs. That is around 2 1/2 times the jobs created for each apartment unit built in a multi-family apartment building."

Economic Calendar

• Markit US Manufacturing PMI (Mon): Economists estimate this index was 56.2 in May, up from 55.4 in April. "The US manufacturing sector continued to gain strength heading into mid-year as supportive demand conditions led to the sharpest month-on-month increase in production for over three years," said Markit's Paul Smith in the preliminary report. "This provides further confirmation that industry will aid a rebound in U.S. GDP in the second quarter, and other indicators from the survey suggest that the sector has plenty of momentum heading into the summer and beyond."
• ISM Manufacturing (Mon): Economists estimate this index climbed to 55.5 in May from 54.9 in April. "Regional manufacturing surveys all remained in expansion territory in May and manufacturing capacity utilization has also been trending upward," said Wells Fargo's John Silvia. "We expect ISM manufacturing to continue to improve in May and gradually edge higher in the coming months."
• Construction Spending (Mon): Economists estimate spending climbed by 0.6% in April. "The residential category probably picked up modestly, mirroring the rise in housing starts," said Citi's Peter D'Antonio. "However, public projects probably continued to hold down the total."
• Vehicle Sales (Tues): Analysts estimate the pace of sales increased to an annualized pace of 16.1 million in May from 15.98 million in April. "Industry surveys point to a modest gain in overall motor vehicle sales in May after they pulled back 2% in April to a 16.0 million unit annual rate following a 7% surge in March to a seven-year high of 16.3 million," said Morgan Stanley's Ted Wieseman. "Retail sales appear to be on pace for a stronger gain to the best pace of the year, partly offset by lower fleet sales."
• Factory Orders (Tues): Economists estimate orders increased by 0.5% in April. "Factory orders rose at a solid pace in March after being depressed between December and February," noted Nomura economists. "Orders should rise again in April, as signaled by the increase in the advanced reading on durable goods orders."
• ADP Employment Change (Wed): Economists estimate private payrolls increased by 210,000 in May. "ADP has been an accurate gauge of BLS private jobs over the last three months, with a mean absolute miss of just 10K," noted Credit Suisse economists. "Over the last twelve months (perhaps a truer measure of performance), the mean absolute miss is 40K."
• Trade Balance (Wed): Economists estimate the trade deficit widened to $40.6 billion in April. "We project a modest narrowing in the April trade balance to $40.1bn in April," said Barclays' economists. "While inbound and outbound container traffic rose on the month, the outbound component did so at a slightly faster pace, suggesting exports grew faster than imports. In addition, our projection reflects improvements in the new export orders component in the manufacturing and nonmanufacturing ISM surveys."
• Markit Services PMI (Wed): Economists estimate this activity index increased to 58.2 in May from 55.0 in April. "With decisive shifts in output and new business indicated during May, the survey should help alleviate concerns that the first quarter slowdown reflected underlying sluggishness in the US economy," said Markit's Tim Moore in the preliminary report.
• ISM Non-Manufacturing (Wed):Economists estimate this services index climbed to 55.5 in May from 55.2 in April. "The ISM non-manufacturing index likely picked up further in May, reinforcing the notion that the slowdown witnessed from December to February was weather related," said Citi's Peter D'Antonio. He also noted that the employment sub index of the report has recently become an unreliable indicator of the jobs report. Here's D'Antonio: "The employment component of the ISM non-manufacturing index, which in the past has been a useful guide to nonfarm payrolls, has deteriorated sharply since January. This is a bit unusual, since private-services jobs grew rapidly during that period, averaging 180K per month. If this disconnect between payrolls and the ISM measure continues, we will have to re-examine what, if anything, the employment sub-index is telling us about the labor market."
• Federal Reserve Beige Book (Wed): The Fed will publish this book of economic anecdotes at 2:00 p.m. ET. From Credit Suisse: "Markets will be looking to next week's Beige Book for signs of a rebound in economic activity from the winter contraction (embodied in the -1.0% real Q1 GDP print). The tone of the previous Beige Book, released on April 16, was generally positive, providing anecdotal support for the contention that growth is picking up. But the re- acceleration in business activity through early April had been described as only "modest or moderate." It would be a positive sign if the word "modest" were dropped from the opening summary in Wednesday's report."
• Initial Jobless Claims (Thurs): Economists estimate claims climbed to 310,000 from 300,000 last week. "This is the week of the Memorial Day holiday, so claims will be affected by a strong seasonal adjustment factor, adding to the volatility we've seen in the data over the last several weeks since late April," noted Bank of America Merrill Lynch economists.
• The Jobs Report (Fri): Economists estimate U.S. companies added 215,000 nonfarm payrolls in May, including 210,000 private payrolls. The unemployment rate is expected to climb to 6.4%. "While the pace of job gains will be down from last month's heady 288k increase, the four-week moving average on initial jobless claims-one of the five key indicators we are watching and which made a new cyclical low last week-points to an acceleration in hiring in the months immediately ahead," said Deutsche Bank's Joe LaVorgna who expects an NFP print of 200,000.
• Consumer Credit (Fri): Economists estimate credit balances increased by $15.00 billion in April. "Within this, we expect a $13.0bn increase in the nonrevolving component and a more modest $2.0bn gain in the revolving component," said Barclays economists. "Both of these would be in line with their trends in recent years, with federal student loans continuing to drive overall credit growth."

Market Commentary

On Friday, the S&P 500 closed at an all-time high of 1923.57. Among other things, investors may be banking on robust earnings growth expectations.

"Earnings growth rates are then expected to jump to 9.6% in Q3 2014 and 10.1% in Q4 2014," said FactSet's John Butters.

But Butters warns that estimates for those quarters have a history of being too optimistic. From Butters: "Looking at projections for earnings growth for Q3 on June 1st over the past four years (2010- 2013), analysts overestimated actual earnings growth for the third quarter in three of the past four years. Over the four-year period, analysts overestimated earnings growth for Q3 by an average of 43%. If this average overestimation is applied to the current earnings growth estimate of 9.6% for Q3 2014, actual earnings growth for Q3 2014 would be 5.5%."

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