Lots of important data on the calendar will inform the direction of this week's financial markets. 

The highlight is Friday's employment report for August, anticipated to be weaker than July's. The ISM manufacturing index may fall into contractionary territory for the first time since July 2009. Home prices are expected to have paused, perhaps in part because mortgage rates are low enough to be offering a discount. And consumer confidence is likely to plummet.

"A busy week ahead will start with a damage assessment from Hurricane Irene," said IHS Global Insight.

The two-year Treasury yield is one basis point higher at 0.20%, the 10-year yield is four basis points higher at 2.23%, and the 30-year yield is three basis points up at 3.57%.

Equity markets are slightly upbeat as the week gets underway. Coming off the first weekly increase in five, S&P futures are up another 10 points at 1,186 and Dow futures are up 81 points at 11,360.

Light crude oil is 0.09% higher at $85.45 per barrel, while gold prices are 1.32% higher at 1,821.20.

Key Events This Week:

Monday:

8:30 - The Personal Income & Outlays report is expected to show incomes and spending on the rise in July, but certain details make the numbers less inspiring than first glance. Income is anticipated to rise 0.3% in the month, versus gains of 0.1% and 0.2% in the prior two months, and consumption is to jump 0.6%, versus a 0.2% cut in June and 0.1% gain in May.

"July's payroll employment report pointed to a solid improvement in private wage and salary disbursements - but the prospects for August are much gloomier," said IHS Global Insight. 

Economists there noted the 0.6% consumption increase is just 0.2% once inflation is taken into account. Even so, that would still be the strongest month since March. 

"Spending on vehicles was up sharply as supply constraints began to ease, while spending on energy services should have risen sharply due to very hot weather raising electricity demand for air conditioners," they added. "On top of these volume increases, spending was inflated by higher prices."

Janney Capital Markets noted the 0.4% gain in hourly earnings in July was tied for the largest one-month gain since 2008.

"Although July's spending and outlays prospects look somewhat cheerier than in recent months, slightly elevated short term inflation will eat into the results, causing real spending to fall well short of the nominal numbers," Janney noted. "In addition, while the stronger-than-June numbers are modestly encouraging, it's hard to imagine meaningful income or spending growth when intermediate term labor market prospects remain decidedly uninspiring."

Also in the report is the core PCE price index - the Fed's preferred measure of inflation. It's forecast to rise 0.2%, which would put its annual rate at 1.5%.

"Higher core inflation is one reason that the Fed will be more cautious about adding more monetary stimulus than it was in 2010 when deflationary risks were high," IHS said. "The Fed will keep a close eye on core inflation to determine if deflationary risks are returning."

10:00 - The Pending Home Sales Index has lost some credibility the last few months. The index looks at contracts for home sales which have been signed but not finalized, thus offering a one or two month lead on actual sales. But strong gains in May and June failed to translate into sales because of contract cancellations. 

"The pending versus realized home sales data have become something of a conundrum in recent months, as pending sales have trended unchanged since year end 2010, while existing home sales have slid 11%," said Janney Capital Markets. 

They said tougher mortgage lending standards are "stranding some buyers at the closing table sans financing."

This month, economists anticipate contracts to fall 0.5%, but Janney, which estimates a 1.3% cutback, said the "usefulness of the pending home sales series has come into question."

• Treasury Auctions:
• 11:30 - 3-Month Bills
• 11:30 - 6-Month Bills

Tuesday:

9:00 - The S&P Case-Shiller Home Price Index is expected to pause in June, indicating some stability after prices dropped 4.5% over the prior 12 months. The evidence stems from multiple sources, including the FHFA Purchase index climbing for the past three months (to June), as well as private research from Zillow.com and Core Logic.

With the glut of supply on the market, and not much demand, housing prices should be continuing to fall, Janney Capital Markets said. The fact that they aren't may mean that historically low mortgage rates are supporting the current level of home prices despite slower sales. 

"Lower mortgage rates have effectively absorbed what would otherwise be falling sales prices," Janney wrote. "Case in point: the 35 basis point decline in thirty year agency mortgage rates from the first quarter average to June is equivalent to a 4% drop in home prices. This financing effect has slowed the pace of home price depreciation, although we're still on track to see a 7.5 - 10% drop in real estate prices for full year 2011."

10:00 - Consumer Confidence took a beating in last week's measure from the University of Michigan. This index, from the Conference Board, is likely to corroborate that. Political inaction in Washington, high unemployment, and gyrating financial markets are just a few of the reasons driving sentiment lower. The median estimate expects the survey to drop to 52 from 59.5. Some estimates are as low 45. 

"Political rhetoric coupled with the downgrade of the US credit rating and finally the bout of recent volatility appears to have wreaked havoc on consumers' perceptions, at least judging by the interim U Michigan and Bloomberg consumer surveys-not to mention common sense," said Janney Capital Markets. "Given that the genesis of the consumer confidence problems is purely quantitative and non-economic, estimating just how deeply recent events impaired confidence is a tricky exercise."

A modicum of hope stems from predictions from August was a low point and that confidence could move upwards in September.

12:15 - Narayana Kocherlakota, president of the Minneapolis Fed, speaks on the economic outlook and leverage to the National Association of State Treasurers in Bismarck, North Dakota.

2:00 - The FOMC Minutes of the August 9 meeting may have been preempted somewhat by Fed chairman Ben Bernanke speaking in Jackson Hole, Wyoming, last week. But there's still plenty of details to glean. In particular, markets want details from the three voting members who dissented from the Fed's vow to keep overnight lending rates extremely low until mid-2013.

• Treasury Auctions:
• 11:30 - 4-Week Bills

Wednesday:

8:15 - The ADP Employment Report is expected to show private job growth in the range of 105,000 for August. High Frequency Economics assumes a 100k figure, including the loss of 45,000 Verizon jobs. Few others offered a forecast. 

9:45 - The Chicago Business Barometer came in worse than forecasts in July, dipping to 58.8 from a previous 61.1. Now, the August report is expected to fall quite a bit further. The median estimate is 53, its lowest score since third-quarter 2009. Some forecasts are even below the 50 threshold. 

"Business confidence measures across the board have recoiled from the events in Washington DC and the market collapse in late July and early August," said Citigroup. "Although the Chicago index has been consistently stronger than other regional and national surveys, we think that it will not be able to go against the grain this time."

10:00 - Factory Orders were cut 0.6% in June, but this month's 4% gain in new orders for durable goods has set a new tone. Economists are looking for a 1.5% rebound.

"Factory orders likely rose at a healthy clip in July based on the already reported increase in durable goods," said Citigroup. "Nondurable goods were probably once again about unchanged as gasoline price declines offset other modest increases."

Nomura, which looks for a 2% gain, added that "price strength from rising commodities over the month should lift nondurable inventories and orders."

Thursday:

8:30 - Initial Jobless Claims rose to 417,000 in the week ending August 20, causing the four-week average to jump 4k - its first increase in eight weeks - to 408k. This week economists are looking for 410k new claims. Predictions for this survey are usually little more than a recap of the four-week average, but this week's also take into account Verizon workers returning to work.

"Initial jobless claims probably fell by 7,000 after filings from roughly 21,100 striking Verizon workers boosted the tally over the two prior weeks," said Citigroup, noting all of the striking employees returned to work on August 23. "Hurricane Irene may have dampened claims in Puerto Rico, but the impact on the overall count is likely to be negligible given the relatively small number of claimants there."

8:30 - Revisions to the quarterly Productivity & Costs report will have to take into account slower growth in the latest GDP estimates, meaning that productivity figures will be cut. The first estimate assumed productivity fell by 0.3% and said unit labor costs rose 2.2%. Forecasters are now estimating a 0.5% cut in productivity and a 2.3% gain in labor costs.

"The recent drop in productivity is temporary, but productivity growth is likely to remain sluggish over the next two years," said IHS Global Insight. "Labor costs are edging up, but are not a problem yet."

10:00 - The ISM Manufacturing Index is anticipated to drop into contraction for the first time since the recession officially concluded. Last month the index dropped to 50.9 from 55.3, and since then regional surveys have only gotten worse. The consensus call is 48.5.

IHS Global Insight predicts a 47 score, which they said would indicate "heightened recession risks" but would not be "a definitive recession signal."

But Janney Capital Markets predicts a 1-point increase to 51.9 this month. They argue that nervous perceptions drove the number down last month and that recent performance in the regional reports were just a hangover from late July.

"Curiously, nearly every subcategory within the ISM weakened significantly, except for the two most critical, the new orders and new export orders components," Janney said of last month's report.

"From our perspective, that result implies that purchasing managers are becoming increasingly concerned about future prospects, yet the more immediate evidence isn't yet bearing out the concerns," they added. "As a result, we're anticipating something of a bounce in the ISM manufacturing index for August, driven by less in the way of nervous perceptions."

10:00 - Construction Spending is anticipated to grow 0.2% in July, the same level as June. 

IHS Global Insights says to expect "another solid gain for private nonresidential construction, a small gain for single-family construction and another drop in public construction." 

Citigroup said to take in the new data cautiously, as revisions have been quite large recently. They look for modest gains in July. 

"Nonresidential structures appear to be trending higher, but those gains tend to be offset by declines in public projects," Citi said. "We figure residential construction increased on higher multifamily building and a rise in home improvements. 

Friday:

8:30 - Great uncertainty hangs over this month's Employment Situation. Economists speak of unpredictable government policy and weak sentiment conspiring to keep businesses from adding to payrolls. Last month's total gain of 117k jobs was much better than expected but still too weak to keep up with population growth; this month, only 85k jobs are to be added to the economy.

Economists at Nomura Global Economics are even forecasting a decline in total nonfarm payrolls of 5k.

"A data release in line with our forecast will lead many to conclude a new recession began in August," they wrote. "Businesses likely shut the door on hiring as the economic outlook became even more 'unusually uncertain' amid fears of European contagion and stock market volatility. Surveys of business confidence that have pointed to stalled hiring intentions, slower growth in withheld income tax receipts, and the sharp decline in the Philly Fed's survey all point to little or no job growth in August."

Others note that government jobs are being cut across the federal, state, and local level, while the Verizon strikes will subtract 45,000 jobs.

"Payroll employment has been on a rollercoaster ride all year, buffeted by weather and  some residual seasonal swings," said Citigroup. "The July print was the first that was anywhere near what could be considered a trend-like gain. Since that reading, however, there has been a notable deterioration in business sentiment. The events in Washington surrounding the debt ceiling/budget negotiations have prompted firms to question the outlook and their own expansion plans. 

"Thus far, the weakness has been centered in surveys, while hard data actually improved into early August. But we worry that firms may have been slow to hire workers during the negotiations, particularly those that do business with government. This could dampen the August payroll tally."

Meantime, the Unemployment Rate is expected to remain at 9.1%.