Economic indicators this week will be critical in terms of providing further insights on the progress of the severe U.S. recession, which is entering its 16th consecutive month, note the analysts at Global Insight. The leading ISM/NAPM indicators on the manufacturing and services sectors will gain the most attention. Evidence continues to indicate some bottoming process is occurring - in the sense that the rate of contraction of the economy is starting to diminish - and leading ISM activity indicators have bounced off their recent lows.

The gauges on inventories and inventory sentiment will be of particular interest, as they will be the first to flag that pressures on inventories are starting to ease in response to recent sharp reductions in production and slightly better consumer spending. It is too early to foresee a tangible trough to the economy, but April will be a critical rite of passage.

While ISM/NAPM leading indicators may offer some glimmers of hope that a bottoming process is starting, the employment report at the end of the week - with another 750,000 jobs expected to be lost - will be a sobering reminder of how much pain this recession is generating, although employment conditions are a lagging indicator on the economy. In other potentially sour notes, construction spending in February is expected to contract sharply, and motor vehicle sales are expected to be reported at a sickly level of about 9 million units in March, as leasing and rental fleet demand remains collapsed and households continue to be broad-sided by sharp declines in employment levels.

Any lift from the March stock market rally will be offset by the downdraft from a rapidly deteriorating job market. This index is more heavily affected by employment conditions than the Reuters/University of Michigan's Consumer Sentiment Index, and we estimate that 750,000 payroll jobs were lost in March. After declining at a 4.3 percent annual rate in the fourth quarter of 2008, real consumer spending stabilized in early 2009. But recovery is not expected until summer.

Single-family construction likely dropped 8 to 9 percent, despite February's small increase in single-family housing starts. Nonresidential construction is starting to post outsized percentage losses, and we are expecting a 3 percent drop in this category. Public construction dropped 2.3 percent in January, and we are expecting a similar drop in February. Overall, we expect that construction spending dropped 2.5 percent in February. Excluding residential improvements, the drop was 2.9 percent.

The ISM-manufacturing index probably fell back to 34.6. That would still be above the December reading, but any reading near it would still paint a very bleak picture for the near-term economy. Regional surveys have given mixed signals, with New York and Philadelphia very poor, but Richmond showing a substantial improvement.

The retrenching consumer and lower levels of sales to fleet (especially daily rental) outlets will persist through the next few months. The industry eagerly awaits a decision from the Presidential Task Force on Autos in regards to the future of GM and Chrysler LLC - although it will take more than a bailout to reverse the historically low monthly sales results.

There may be some hints of stabilization in consumer spending and the housing market, but we do not expect these to translate quickly into an improvement in the jobs market. The March Employment report is expected to be another bleak one, with nonfarm payrolls dropping 750,000, their worst decline yet in this recession. A continuing uptrend in initial unemployment insurance claims and a sharp increase in continuing unemployment insurance claims in March are the main reasons for pessimism. We expect to see the unemployment rate rising sharply to 8.6 percent from 8.1 percent.

The ISM index for services is expected to drop by about a point to 41.0 in March. Freight activity continues to come under downward pressure, as both exports and imports have declined sharply and inventory reductions continue. Partially offsetting this, we may see an unusual seasonal pop in orders.

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