ECONOMIC PREVIEW A slowdown, not a recession, to be seen in data By Rex Nutting<http://www.marketwatch.com/news/mailto.asp?x=114+110+117+116+116+105+110+103&y=Rex+Nutting&z=marketwatch.com&guid=%7B09690a97-698d-4de6-ab36-a0663ff56f8a%7D&siteid=mktw>, MarketWatch Last update: 10:45 a.m. EST March 2, 2008 [image: Print]Print<http://www.marketwatch.com/news/story/slowdown----not-recession---/story.aspx?guid=%7b09690A97-698D-4DE6-AB36-A0663FF56F8A%7d&dist=TNMostRead&print=true&dist=printTop> [image: Email]E-mail<http://www.marketwatch.com/news/story_email.asp?guid=%7B09690a97-698d-4de6-ab36-a0663ff56f8a%7D&dist=emailTop> [image: Subscribe to RSS]RSS <http://www.marketwatch.com/rss?dist=rssTop> [image: Disable]Disable Live Quotes<https://secure3.marketwatch.com/registration/signin/general.aspx?dist=dlqTop&returnUrl=http://www.marketwatch.com/news/story/slowdown----not-recession---/story.aspx?guid=%257b09690A97-698D-4DE6-AB36-A0663FF56F8A%257d&dist=TNMostRead> *WASHINGTON (MarketWatch) -- Financial markets are on high alert for any signs in the economic data that the slump has deteriorated into a full-blown recession.* Key data coming in the next week will probably keep markets on edge, showing "very weak growth, but not recession," says Drew Matus, an economist for Lehman Bros. Some of the biggest numbers of the month will be released in the coming week, led by the February employment report and the February report from the Institute for Supply Management, a monthly survey of manufacturers' purchasing managers that's one of the best real-time gauges of the economy. The Federal Reserve will also release its Beige Book, a compilation of anecdotes about the economy. And 12 of the 17 members of the Federal Open Market Committee will speak in public, including eight of the 10 voting members. Payrolls The employment report will be the biggest headline of the week. It will be released on Friday at 8:30 a.m. Eastern. After nonfarm payrolls fell by 17,000 in January, the first decline in four years, economists surveyed by MarketWatch are looking for a small increase of about 35,000 for February. But they acknowledge that the risks for another decline are high. Most of the early indicators for payrolls have been on the weak side. Jobless claims are rising "toward recession territory," wrote Brian Bethune and Nigel Gault, U.S. economists for Global Insight. Consumers told the Conference Board that jobs are getting scarce and that they expect them to get even scarcer in coming months. We believe the risk remains firmly on the downside," wrote Meny Grauman, an economist for CIBC World Markets. "Another downward employment surprise will only further fan speculation that the U.S. is firmly in a recession." Others say job growth should rebound in February, if only for technical reasons having more to do with how the report is put together than on better fundamentals on the ground. "The recent pace has been near zero and is likely to remain so," wrote Stephen Gallagher, U.S. economist for Societe Generale, who notes that the still relatively low level of layoffs may be a misleading indicator, since companies have been keeping payrolls tight for years and aren't overstaffed heading into the slump. A better indicator may be hiring, which has slowed in recent months. Declining jobs is the chief indicator of a recession, but one month doesn't prove anything. Job growth is also the chief determinant of income growth, which is another recessionary indicator. Real disposable incomes have fallen at a 0.8% annual rate over the past three months. ISM The other major report of the week comes on Monday with the ISM survey for February. Readings under 50% in the ISM index indicate that the manufacturing sector is contracting, but it takes a much weaker reading near 41% for a recession to be called. The ISM dipped to 48.4% in December, and then rebounded to 50.7% in January. Economists that we surveyed predict it will fall back to 47.3% in February, which would be the lowest in nearly five years, dating back to the fragile days at the start of the Iraq War. "The manufacturing sector continues to struggle" with slumps in housing and autos, said Bethune and Gault of Global Insight. "Strong global demand for U.S. exports is providing some much-needed support for the ailing U.S. manufacturing sector, but cannot fully counteract the negative effect of falling domestic demand," said Grauman of CIBC. Hard data on output and new orders only partially confirm the weakness in the ISM. Manufacturing output peaked in July, according to the Fed's industrial output data. Orders for capital equipment have fallen in three of the past four months, but were up more than 5% in the other month. [image: End of Story] *Rex Nutting is Washington bureau chief of MarketWatch.*
