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Brown Forman, Campbell Soup, Heinz, H&R Block and SAIC

^{Published on 2010-08-30 14:21:05 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Zacks.com releases the list of companies likely to issue earnings surprises. This weeka™s list includes Brown Forman (NYSE: [ BF-B ]), Campbell Soup (NYSE: [ CPB ]), Heinz (NYSE: [ HNZ ]), H&R Block (NYSE: [ HRB ]) and SAIC (NYSE: [ SAI ]).To see more earnings analysis, visit [ http://at.zacks.com/?id=3207 ].

"Earnings estimate revisions are the most powerful force impacting stock prices."

Every day, Zacks.com makes 4 stock picks available, free of charge. To see them, go to [ http://at.zacks.com/?id=3567 ].

Lots of Economic Data Coming Up

Earnings season is just about over, with just a few stragglers, mostly those with fiscal periods ending in July. Many of those are retailers and non-U.S. firms. There will be 83 firms reporting, including just 5 S&P 500 firms. The S&P 500 firms that will be reporting are Brown Forman (NYSE: [ BF-B ]), Campbell Soup (NYSE: [ CPB ]), Heinz (NYSE: [ HNZ ]), H&R Block (NYSE: [ HRB ]) and SAIC (NYSE: [ SAI ]).

With very little action on the earnings front, all eyes will be focused on the economic data, and we will be getting a boat load of it. We start with Personal income and Spending on Monday, and end with the all-important employment report on Friday. In between, we get news on housing prices, pending home sales, auto sales, productivity as well as the ISM indexes for both manufacturing and services. It will be a very busy week for those following the economy.

Monday

• While most people will be relaxing and celebrating/mourning the end of summer, we get significant economic information in the form of Personal Income and Personal Spending for July. Personal Income is expected to increase 0.3%, a nice improvement over the 0.0% change in June. Personal Spending is expected to accelerate to a 0.3% increase from a 0.1% increase in June. If both Income and Spending are increasing at the same pace, that implies no real change in the savings rate. The savings rate has been trending higher. While it is good in that it allows consumers to repair their balance sheets, the rise of the savings rate is a major drag on current economic growth. Over time the savings rate needs to rise, but as it does, it creates a very big headwind for the economy. The sources of the increase in personal income will also be of interest. Very little of the increase in personal income that we have seen so far this year has come from growth in wages. Much more has been due to increases in government transfer payments.
• We also get the report on Personal Consumption Expenditure Prices. While this measure of inflation does not get as much press as the CPI, it is one of the Feda™s favorite measures of inflation. It is expected to show a rise of 0.1% in July after being unchanged in June. I would see that up-tick as good news, since the current danger of deflation is much greater than that of renewed inflation. At any given level, deflation is a much nastier economic disease than inflation.

Tuesday

• The Case Schiller home price index will probably show that prices of houses continued to increase in June, but the year-over-year gain will probably be smaller than the 4.61% gain recorded in May. The index is actually a three-month moving average, and has a significant lag in reporting (this is June data, after all). However, as a repeat sales index, it is the gold standard for measuring changes in housing prices. The June numbers will still be benefiting from the now expired home buyer tax credit. It is highly likely that housing prices are going to start to fall again in the second half of the year, but it will be a few more months before we get confirmation of that in the Case Schiller numbers.
• The Chicago Purchasing Managers Index (PMI) is expected to come in with a reading of 57.5, down from 62.3 in July. It is one of the amagic 50a indexes where any reading above 50 indicates expansion, and anything below that means contraction. Thus it is expected to show that manufacturing activity in the upper Midwest continued to expand in August, but at a slower pace than in July. This would be consistent with the pattern we have seen in the other amini ISMa™s.a
• The Consumer Confidence index is expected to have improved to a reading of 51.3 in August from 50.4 in July. That is still a very low reading, and not much cause for celebration. Given the other data we have seen, I think the consensus might be a tad on the optimistic side here. In any case, I am not a big fan of this number since what consumers say in these surveys is often not what they actually do. Still, given that the consumer accounts for over 70% of the economy, it should be a very important number, in theory.

Wednesday

• We get the appetizer for the employment report in the form of the ADP employment survey. This is expected to show a drop of 15,000 private sector jobs in August, a sharp slowdown from the 42,000 jobs gained in July, according to ADP. As the firm that actually cuts the checks of most companies' payrolls, ADP is in an excellent position to gauge the strength of the job market. However, its numbers are often quite different, and usually lower, than the private sector jobs numbers that are reported by the BLS on Friday.
• Construction Spending is expected to have declined by 0.4% in July after rising 0.1% in June. I would not be surprised if the decline was larger than that given the weak housing starts and building permit data we have seen, along with the previous weakness in architects billings on the non-residential side.
• The ISM manufacturing index is expected to come in at 53.3, down from 55.5 in July. As a amagic 50a index, that means that the manufacturing sector of the economy is still expanding, but at slower pace than last month. The overall index is made up of 10 sub-indexes which often provide the most interesting information. Pay attention not only to the overall index, but also to the sub-indexes covering production, new orders, backlog and employment.
• In July, Auto sales were running at a 3.80 million pace, and light truck sales were going at a 5.14 million pace. While consensus expectations are not available, I would expect a small increase with light trucks faring better than cars. On a year-over-year basis, sales will be down sharply, since a year ago was greatly boosted by the Cash for Clunkers program.

Thursday

• Weekly initial claims for unemployment insurance come out. They fell 31,000 in the last week, to 473,000. After a huge downtrend from mid April through the end of 2009, initial claims were locked in a tight atrading range.a Two weeks ago, they broke out of that trading range to the upside, which was a very bad sign, so the decline last week was very welcome. Look for them to fall modestly next week. We probably need for weekly claims (and the four-week moving average of them) to get down to closer to 400,000 to signal that the economy is adding enough jobs to make a dent in the unemployment rate. A rate of over 500,000 signals that the unemployment rate is probably headed back up.
• Continuing claims have also been in a steep downtrend of late. Last week they fell by 62,000 to 4.456 million. That is still down 1.595 million from a year ago. Most of the longer-term decline was due to people simply exhausting their regular state benefits, which run out after 26 weeks. Federally paid extended claims rose by 302,000 to 5.837 million. In May, extended benefits ran out. Almost two million were cut off from benefits as the Senate filibuster dragged on. The filibuster was eventually overcome a few weeks ago, and people are streaming back on to the rolls, with a total increase of 2.177 million over the last month. That rebound should be mostly over now, so look for the extended claims numbers to stabilize. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now, given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits, currently at 9.993 million, which is up 240,000 from last week. The total number of people getting benefits is now 886,000 million above year-ago levels. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
• We get the second look at productivity growth in the second quarter. In the original report it fell 0.9%, which reversed a string of very strong gains in the previous four quarters that had pushed productivity growth to a 50-year high. With the downward revision to GDP growth in the second quarter, it is likely that productivity growth will also be revised down. The consensus is looking for a 1.5% rate of decline.
• Unit Labor Costs were originally estimated to have risen 0.2% in the second quarter. That is expected to be revised to a rise of 1.0%. I suspect that it will be revised up, but not by that much, more like 0.8%.

Friday

• The most important report of the week is the employment report. Total payrolls are expected to fall by 120,000 after a decline of 131,000 in July. Census workers will continue to be laid off, but not as many as in July (there are not that many of them left). Private payrolls are expected to have increased by 44,000, down from 71,000 in July. That is not going to put much of a dent in the vast army of the unemployed. Revisions to prior month's number will also be important. The unemployment rate is expected to tick up to 9.6%. Much of the change in the unemployment rate will depend on the civilian participation rate. If it continues to decline, the unemployment rate might stay where it is, but if the participation rate stops falling the unemployment rate will likely shoot upwards. The report is also expected to show that average hourly earnings increased 0.1% in August, down from a 0.2% gain in July. The average workweek is expected to be unchanged at 34.2 hours. Over all, that adds up to very weak report. Keep an eye on the duration of unemployment numbers. The median duration of unemployment fell in July to a still sky high level of 22.2 weeks. We need to see that continue downwards.
• The ISM Services Index is expected to come in at 53.0 for August, down from 54.3 in July, indicating that the non-manufacturing side of the economy is still expanding, but at a slower rate.

Dirk Van Dijk, CFA, is the Chief Equity Strategist for Zacks.com.

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