It's a big week for economic data, and the stock market could react to reports released through the week.
"The focus will be on Europe today and maybe tomorrow," says John Stewart, an economist and founder of Vantage Economics.
"Then the focus will shift to the domestic economy with some of the reports coming out, and they could underwhelm. If they do, you'll see a better market this week for bonds than for stocks," he says.
This morning, the personal income and outlays report was released. The report looks at income, savings and spending.
It's of particular interest, as consumer spending accounts for about 70 percent of the economy.
"If there is any weakness, then that has a direct effect on business revenues and therefore hiring. The amount of spending that is taking place on personal level in the economy is really a key barometer of the vitality of the economy," says Stewart.
The report showed that incomes increased in December by about 0.5 percent, but spending decreased by less than 0.1 percent. The savings rate increased to 4 percent in December.
"The decline was unexpected by a lot of markets, but I would say it wasn't totally unexpected because we had seen savings start to dip. If people are dipping into their savings in order to continue spending, it's not really sustainable," Stewart says.
Tuesday will see the release of the consumer confidence index by the Conference Board. The index is compiled from a survey of 5,000 households and measures consumers' financial situations and their feelings about business conditions and employment prospects.
Though consumer sentiment is subjective and can be transitory, consumers who feel positive about their economic prospects tend to spend more. Again, consumer spending is a huge driver of the economy.
Wednesday will bring the ADP employment report, which could forecast the direction of the nonfarm payrolls report on Friday.
"Typically, markets look at it pretty heavily to see what they might be expecting in terms of the over/under on the jobs report on Friday. It doesn't look like markets are expecting anything too out of the ordinary, but we did see some of the data that rounded out the year was a little seasonal," Stewart says.
For instance, "some retail sales hiring that was a little aggressive based on sales from the early part of the holiday season relative to the ebbing of spending towards the end of the season. Some retailers may have overhired," he says.
"Trading will be a little bit more volatile on Wednesday if the ADP report gives us any shocking data to look at," Stewart says.
Also to be released on Wednesday is the ISM manufacturing index.
"Historically, it has been a pretty good indicator of overall economic activity and somewhat of an indicator as to whether or not we're headed into a recession or seeing a recovery. So it gets quite a bit of play in terms of general economic health. It can actually impact markets quite a bit, as it can be an overall gauge of economic activity," says Stewart.
According to the weekly newsletter from High Frequency Economics, "US Notes for January 30," the consensus is for a small increase from December's reading of 53.9 to 54.5.
On Thursday, the weekly initial jobless claims will be reported. It's expected to show another increase over the low hit two weeks ago.
"Two weeks ago, there was a large drop, then a bit of a bounce back last week because it was such a huge decline in initial claims. Markets are expecting about 375,000 this week, but I wouldn't be surprised if it was more along the lines of 380,000," Stewart says.
Finally on Friday, we'll get the biggest news of the week from the nonfarm payrolls report and the unemployment rate.
Stewart expects no big change to this month's headline unemployment number, but it could tick up in coming months.
"One of the reasons we saw the large decline in the rate recently was the number of people who simply left the job market; when they count you as unemployed, you have to be both actively searching for a job and not working. If you suddenly decide you're not looking for a job, you leave the labor force and are not counted as unemployed officially," he says.
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