February 27, 2010 / 12:07 AM / 10 years ago

Wall St Week Ahead: Payrolls, ISM may steer stocks

NEW YORK, Feb 26 (Reuters) - Payrolls could give the U.S. stock market some direction next week as investors comb through the key report on one of the economy’s weakest areas.

More news on Greece’s debt problems could also fire up investors after a week of little movement in stocks, with the market ending Friday’s choppy session slightly higher in light trading volume due to a heavy winter snow storm that hit New York City and much of the U.S.Northeast, forcing businesses, schools and transportation systems to close. It was New York City’s second major snow storm this month.

The Institute for Supply Management will give Wall Street vital information on manufacturing and services next week, when it releases its February indexes on those sectors.

But February’s non-farm payrolls report from the U.S. Labor Department will be the main event as job losses continue to give investors reason to question the sustainability of the economy’s recovery.

“The market is looking to move off center ... and the employment report is probably going to be the most important of the week,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

“If that number comes in weak, it really confirms the strong unemployment claims data we’ve seen. If it comes a little bit better, it would indicate maybe we’re creating jobs at a fast enough pace to offset the claims,” he said.

Besides payrolls, Wall Street will have a flurry of other numbers to mull over, including January personal income and spending, as well as February domestic car and truck sales.

Fourth-quarter earnings reports are winding down, but investors will see results from a handful of Standard & Poor's 500 .SPX companies, including natural gas producer and pipeline operator El Paso Corp EP.N and major U.S. office supplies retailer Staples SPLS.O.

BEST MONTH SINCE NOVEMBER

While all three indexes finished slightly lower for the week, the stock market capped its best month since November.

For the month of February, the Dow Jones industrial average .DJI was up 2.6 percent, the S&P 500 .SPX was up 2.9 percent and the Nasdaq Composite Index .IXIC was up 4.2 percent.

Although February was sweet, the final week of the month went down in the loss column. For the week, the Dow slid 0.8 percent, while the S&P 500 shed 0.4 percent and the Nasdaq slipped 0.3 percent. Lingering concerns about Greece’s fiscal deficit problems and its effects on the euro were among factors keeping investors on edge.

The S&P 500 has climbed as much as 70 percent from its lows in early March 2009, largely because of stronger-than-expected economic data and earnings, but it has since retraced some of those gains.

SNOW MAY BLUR JOBS PICTURE

Recent snow storms and other harsh winter weather may contribute to the weaker February jobs picture and make the data even harder to forecast, analysts said.

But, they said, the numbers remain among the most important for the economic outlook.

“You can’t describe the economy as in a recovery until you have job growth,” said Charles Lieberman, chief investment officer of Advisors Capital Management, LLC in Paramus, New Jersey.

For Friday’s jobs report, the consensus forecast, according to economists polled by Reuters, calls for a loss of 50,000 jobs in February, compared with a decline of 20,000 in January. The U.S. unemployment rate is forecast to rise to 9.8 percent in February from 9.7 percent in January.

“Productivity has gone through the roof, and so have earnings, and that’s likely to translate into hiring” at some point, Lieberman said.

More than 70 percent of S&P 500 companies have beaten earnings estimates so far for the fourth quarter, well above the 61 percent in a typical quarter, according to Thomson Reuters, which began tracking data in 1994.

With 96 percent of S&P 500 fourth-quarter results already in, earnings are expected to increase 201.3 percent from a year ago, when the economic downturn took a big toll on corporate results.

SPENDING, FACTORIES AND SERVICES

Investors may need to keep the virtual snow shovels handy as they cope with piles of economic data next week, starting with Monday’s personal income and consumption, or spending, report for January. Personal consumption is forecast up 0.4 percent in January, twice December’s 0.2 percent gain.

The ISM also will give its February snapshot of manufacturing activity on Monday. The forecast from the Reuters poll: An ISM manufacturing index at 57.5 in February, down from 58.4 in January. Construction spending for January also will be released on Monday.

Monthly car and truck sales will be reported on Tuesday. The consensus forecast indicates a slight decline in total vehicle sales to an annual rate of 10.50 million units in February from 10.78 million in January.

Wednesday will bring the ISM non-manufacturing index, which will give a reading of how the important U.S. services sector is faring. A private-sector report on national employment in February from ADP is also due that day.

And while Wall Street’s skies may be a hazy winter gray, the trendy shade will be beige for market professionals. The Federal Reserve’s Beige Book, a collection of anecdotal reports on the U.S. economy from the Fed’s 12 district banks, will be released on Wednesday.

Thursday’s economic indicators will include the latest weekly jobless claims, revised fourth-quarter data on productivity and unit labor costs, and the January pending home sales index. (Wall St Week Ahead runs on Friday. Questions or comments on this column can be e-mailed to: caroline.valetkevitch(at)thomsonreuters.com) (Reporting by Caroline Valetkevitch; Editing by Jan Paschal)

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