Economists and traders are still trying to unpack what happened with Friday's disappointing December jobs report.
PIMCO's Mohamed El-Erian described it as "somewhere between puzzling and worrisome."
The shortfall in payrolls has largely been attributable to cold weather. Indeed, construction jobs saw payrolls drop by 16,000 during the period.
Still, economists argue there are discrepancies. But until the revised data come out, most economists don't think one bad jobs report will derail the economy or the path of monetary policy.
This week offers a ton of economic data that may confirm or deny the lousy jobs report.
Here's your Monday Scouting Report:
Top Story
- Here's Why People Are Confused About The Jobs Report: On Friday, we learned that U.S. companies added just 74,000 new payrolls in December. Many were quick to blame the unusually cold weather. However, there appeared to be more to the report than just bad weather.
Here's Morgan Stanley's Ted Wieseman: "Weather was an important contributor to the softness in December payroll job growth but not enough to explain all of the softness. Construction payrolls fell 16,000, which we estimate is consistent with about a 30,000 weather drag (note that ADP, which has trouble with short-term disruptions, badly missed this, forecasting a 48,000 construction job gain). Leisure and hospitality, which includes some weather-sensitive outdoor areas, rose a sluggish 9,000, reflecting perhaps a 10,000 weather drag. Other weather impacts in less directly impacted areas may have brought the overall weather drag to 50,000 to 75,000. There was major confusion in the market after the report in interpreting the BLS' count of people not at work because of bad weather. This is a measure in the household survey that is indicative -- and only indicative -- of weather impacts on the report. 273,000 people with jobs didn't work in the December survey week because of the weather. Note that THESE PEOPLE HAD JOBS. So obviously this household survey gauge can't just be subtracted from the establishment payroll count. Also that number is always high in December: 273,000 compared with a 20-year average of 135,000. Our past work has indicated that amount of elevation in this HOUSEHOLD SURVEY gauge of PEOPLE WHO HAD JOBS is consistent with roughly a 50,000 to 75,000 weather drag on ESTABLISHMENT SURVEY growth in NET NEW JOBS."
Economic Calendar
- Monthly Budget Statement (Mon): Economists estimate the Treasury will report a budget surplus of $44.0 billion for December. Here's Morgan Stanley's Wieseman: "Underlying improvement continues as payroll and income tax hikes boost receipts and spending remains restrained by sequester caps, but the main contributor to the positive swing from last year in December is GSE dividend payments. With regular earnings running near record levels and Freddie Mac making an additional one-off payment for a deferred tax asset accounting reversal (which Fannie Mae did in June), Treasury received a $39 billion GSE dividend on December 31, up from $5 billion a year ago. For all of fiscal year 2014, we see the deficit narrowing to $585 billion, or 3.4% of GDP, from $680 billion, or 4.1% of GDP, in FY 2013."
- Retail Sales (Tues): Economists estimate sales climbed by 0.1% in December and 0.3% excluding autos and gas. "Some of the large gains in November’s auto sales will be bought back in December, a trend that was evident in the most recent release of vehicle sales data," said Wells Fargo's John Silvia. "With inflation so low and only a modest uptick in gasoline prices, retail sales will not get much of a boost from rising prices in the month. To make matters worse, fierce competition led to heavy discounting among retailers, which likely kept a lid on growth in December. On the plus side, consumer confidence picked up considerably, and chain store sales posted strong growth."
- Empire State Manufacturing Survey (Wed): Economists estimate this regional index jumped to 4.00 in January from 0.98 in December. "We look for a decline in the January Empire State manufacturing index to -2.0 after a December print of 1.0," said Barclays' economists. "While the headline prints have been close to the breakeven level in the past three months with an average of 0.1, the underlying details have been soft and the index has averaged 49.2 on an ISM-adjusted basis over that same time period. "
- Producer Price Index (Wed): Economists estimate the PPI climbed 0.4% month-over-month in December and just 0.1% excluding food and energy. Core PPI is estimated to have increased by just 1.3% on a year-over-year basis. "[T]obacco prices are not seasonally adjusted in the PPI report even though there’s been a regular pattern of December cigarette price hikes in recent years," noted Morgan Stanley's Wieseman. "That will probably again provide a boost to the core PPI this December, but excluding tobacco we look for the core to remain near 0.1%."
- Federal Reserve Beige Book (Wed): The Fed's collection of economic anecdotes will be released a 2:00 p.m. ET. "The Fed’s next Beige Book may describe “moderate” growth in the US. If so, this would be an upgrade from the “modest-to-moderate” language used in the crucial lead sentence of each of the previous five reports," said Credit Suisse's economists. "The information to be summarized in the report probably was collected by January 3. Retailers’ reactions to holiday sales and any anecdotes regarding the appetite for business investment would be of particular interest."
- Consumer Price Index (Thurs): Economists estimate CPI increased 0.3% month-over-month in December and 0.1% excluding food and energy. Core CPI is estimated to have risen by 1.7% year-over-year. "Unadjusted gasoline prices rose slightly in December (4 cents nationwide)," said Credit Suisse's economists. "But seasonal factors expect a significant decline, so adjusted gasoline could rise almost 4% on the month... Shelter inflation appears to be firming, though goods prices should remain tame."
- Initial Jobless Claims (Thurs): Economists estimate weekly claims fell to 325,000 from 330,000 a week ago. However, seasonal quirks continue to have economists questioning the reliability of these numbers in near-term. "Initial jobless claims probably popped up during the week ended January 11, but we think that seasonal factor issues exaggerated the underlying change," said Citi's Peter D'Antonio who is expecting a 355,000 print. "We anticipate that unadjusted claims rose by 20%, which is not unusual for the first full week of January when many holiday workers are released."
- Philadelphia Fed Business Outlook Survey (Thurs): Economists estimate this regional activity index climbed to 8.5 in January from 7.0 in December. "While below the levels in the second half of last year, a move further into expansionary territory would be in line with our view that manufacturing activity will continue to pick up in 2014," said Barclays' economists.
- NAHB Housing Market Index (Thurs): Economists estimate this homebuilder sentiment index was unchanged at 58 in December. "We look for an increase to 59 in the January NAHB index of home builder sentiment," said Barclays' economists. "This would reflect the fading effect of higher mortgage rates earlier this year and would bode well for residential construction activity in 2014."
- Housing Starts (Fri): Economists estimate housing starts fell to an annualized pace of 991,000 in December. "Construction payrolls dropped in December and housing permits and new home sales slid back some in November," Wells Fargo's Silvia. "However, a low supply of new homes and a growing number of consumers planning to purchase a home in the next six months should keep starts at a 986,000-unit pace."
- Industrial Production (Fri): Economists estimate that production activity increased 0.3% in December. "We look for flat industrial production in December, with growth restrained by a pullback in utilities output," said Citi's D'Antonio. "The estimated decline in utilities may seem odd given the cold weather in December, which should have necessitated a lot of heating fuels. However, November actually was even colder seasonally adjusted. The drop in utilities says more about how cold November was and the extreme amount of electricity and natural gas that was produced in that month than about weather in December."
- Univ. of Michigan Confidence (Fri): Economists estimate that the University of Michigan's preliminary reading on sentiment climbed to 83.5 in January from 82.5. "The positive effects of an improving labor market and rising home values should outweigh potential drags on consumer sentiment in early January," said Credit Suisse economists. "The negatives include somewhat higher prices at the gas pump and stalled gains in the stock market."
Market Commentary
It's Q4 earnings season.
"The estimated earnings growth rate for Q4 2013 is 6.1%," said FactSet's John Butters. "The Financials sector is projected to have the highest earnings growth rate for the quarter, while the Energy sector is projected to have the lowest earnings growth rate for the quarter."
Butters says that the big themes to watch are the impact of unfavorable foreign exchange movements, the status of Europe's stabling but weak economy, and the growth contribution from the emerging markets, which are showing signs of slowing.
"For Q1 2014, analysts are expecting earnings growth of 4.3%," said Butters regarding guidance. "However, earnings growth is projected to improve in each subsequent quarter for the remainder of the year. For Q2 2014, Q3 2014, and Q4 2014, analysts are predicting earnings growth rates of 9.2%, 12.8%, and 13.7%. For all of 2014, the projected earnings growth rate is 10.5%."
SEE ALSO: Wall Street's Brightest Minds Share The Best Books They Read In 2013