It's A Massive Week For The US Economy — Here's Your Ultimate Preview

This week begins the third quarter. And there are tons of crucial economic events scheduled.

But in the wake of all of this talk about the Federal Reserve reducing its stimulative bond-buying program (i.e. tapering QE), the biggest report without question will be the U.S. jobs report, which comes out on Friday.

"Most importantly, markets and the Fed are now even more highly dependent on sustained evidence that the real economy is indeed on a solid improving trends, including a consequential rise in actual and expected nominal GDP growth," said PIMCO's Mohamed El-Erian. "With that, the focus will now shift firmly to the forthcoming June jobs report; and it will be even more intensive than usual."

It's a holiday shortened week in America. But it's jobs week in America.

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The State of Fedspeak: "There have been a lot of Fed speakers since the June meeting, including both Bank presidents and governors," said Vincent Reinhart, Morgan Stanley's Chief U.S. Economist and former Fed insider. "Reassurance was in ample supply. We learned that the Fed cares about the pace of economic growth, worries about disinflation, and monitors financial stability."

So, while Bernanke may have projected a tapering of QE for later this year, that could quickly change based on economic data. This is why the June jobs report is so crucial.
The June Jobs Report: Economists estimate that U.S. companies added 165,000 nonfarm payrolls in June, down from the 175,000 added in May. They also believe the unemployment rate improved to 7.5% from 7.6% a month ago. Here's what economists are saying:
-Joe LaVorgna, Deutsche Bank (+145): "Historically, June nonfarm payrolls have tended to be weak, possibly reflecting the difficulty in seasonally adjusting the data for the entry of students and the exiting of teachers ahead of the summer recess. In point of fact, the strongest reading we have seen in the initially reported change on June nonfarm payrolls going back to 2000 has been just +146k (June 2005)."
-Paul Dales, Capital Economics (+150k): "The wildcard, as is always the case in June, is whether more or fewer school leavers than normal entered the ranks of the employed rather than the unemployed."
-Vincent Reinhart, Morgan Stanley (+165k): "We expect the Employment Report to reflect the slight deterioration in jobless claims between mid-May and mid-June. So, we see nonfarm payrolls increasing only 165,000 in June (vs. 175,000 in May). However, the unemployment rate should decrease to 7.5% as the job growth we’re expecting should outpace the uptick in the participation rate."
-Brian Jones, Societe Generale (+190k): "Reflecting an estimated 145,000 reduction between household surveys in the number of persons receiving state and federal unemployment insurance benefits, our augmented insured unemployment measure dropped from 3.75% in May to 7.64% June... The aforementioned projected drop in benefit recipients implies stronger hiring."
-John Silvia, Wells Fargo (+153k): "Some of the largest employment gains have been in lower-paying industries, such as administrative and waste services, which have contributed to modest wage growth. On average, the economy has been adding just short of 190,000 jobs each month this year, although February’s large reading overstates the general trend."
-Jan Hatzius, Goldman Sachs (+150k): "Our forecasts for the US dataset to be released this week will likely be mixed for rates... we think that payrolls will likely disappoint market expectations."
-Jim O'Sullivan, High Frequency Economics (+175k): "That said, a rise in payrolls of 160K-to-170K or more would likely encourage expectations for tapering, while a number below 160K would discourage them."

Economic Calendar

Markit PMI (Monday): Economists estimate PMI climbed to 52.4 in June from 52.2 in May.
ISM Manufacturing (Monday): Economists estimate that the ISM climbed to 50.5 in June, up from 49.0 in May. "[The] ISM should recover modestly given the improvements in the New York, Philadelphia, Richmond and Dallas Fed manufacturing surveys in June," said Deutsche Bank's Joe LaVorgna. "However, the projected ISM gain could be limited based on what we saw in the Chicago PMI, which is statistically the best regional predictor of the ISM. Recall the June Chicago PMI fell 7.1 points to 51.6 on broadbased weakness."
Factory Orders (Tuesday): Economists estimate that orders climbed +2.0% in May. "Durables orders have been reported up 3.6%; we forecast flat nondurables," said High Frequency Economics' Jim O'Sullivan.
Vehicle Sales (Tuesday): Economist are looking for a seasonally adjusted annual rate of 15.45 million units in June, up from 15.24 in May. "A powerful combination of improving labour-market conditions, pent-up 30 demand and ample dealer stocks probably propelled light vehicle sales 3.4% higher to a seasonally adjusted annual rate of 153⁄4 million in June – the highest level since November 2007," said the analysts at Societe Generale.
ADP (Wednesday): Economists are looking for 160,000 new private payrolls in June, up from 135,000 in May. "Private payrolls rose 40K more than the ADP estimate last month; misses have averaged 42K since Moody’s became the compiler of the data," said Jim O'Sullivan.
ISM Non-manufacturing (Wednesday): Economists are looking for a reading of 54.0 in June, up from 53.7 in May. "Service-sector canvasses conducted by the Federal Reserve Banks of Dallas and Richmond suggest that the ISM’s non-manufacturing activity gauge likely rose to five-month high of 54.5 in June," said Brian Jones.
NO DATA ON THURSDAY, MARKETS CLOSED FOR JULY 4TH HOLIDAY.
Jobs Report (Friday): Economists estimate U.S. companies added 165,000 nonfarm payrolls in June, up from 175,000 in May. They also expect the unemployment rate fell to 7.5% in June from 7.6% in May. For details, see above.

Market Commentary

"[E]arnings matter the most for equities, in our opinion, and there is relatively robust statistical evidence to back up that contention," said Citi's Tobias Levkovich in a note to clients last week. "In this respect, we have been a tad shocked by the surge in negative-to-positive preannouncement trends that make 2009’s surge appear less worrisome in retrospect. Upward earnings guidance has dipped as well and there has been little consternation or discussion about it."

So, what's behind all of this disappointing guidance?

"For Q2 2013, 55 companies have issued negative revenue guidance for the quarter and 14 have issued positive revenue guidance," said FactSet's John Butters. "As a result, 80% (55 out 69) of the companies that have issued revenue guidance for the quarter have issued negative guidance. If this is the final percentage for the quarter, it will mark the third highest percentage since 2006."

Based on corporate commentary, much of the weakness is coming from Western Europe and the major emerging markets (i.e. China, Brazil, India).