US Economics Week Ahead: Black or Red Friday?

This week is relatively quiet on the economic front, following last week’s tsunami of data culminating in a much better than anticipated employment release.  This week’s theme is the consumers, who have the potential to stymie last week’s positive sentiment depending on sales strength during the Black Friday shopping weekend.  The week’s primary release will be retail sales on Friday; however, the Tuesday’s typically overlooked Redbook and ICSC-Goldman Store Sales releases could provide some important clues toward Friday’s critical sales report.  Early indications have been mixed, with discount stores seeming to be more robust relative to their department and specialty store counterparts—another indication of a more value oriented consumer.

After Friday’s employment report investors will be paying close attention to Thursday’s jobless claims data hoping for additional evidence that Friday’s much better than anticipated employment report was not a one-off event.  Personally, I still believe the employment situation will get worse before it gets better, but is unquestionably heading in the right direction.  Other important indicators this week include Thursday’s international trade data and Treasury budget; and Friday’s preliminary consumer sentiment index and business inventories report.

We should also hear earnings this week from Costco Wholesale Corp., H&R Block Inc., Kroger, and Smithfield Foods.  Additionally, during a speech on the economy on Tuesday President Obama could discuss new proposals for job creation derived from his recent jobs summit.

Here is the rest of this week’s US calendar:

Monday, Dec. 7

12:00 p.m. EST: Ben Bernanke, the Federal Reserve Chairman, speaks to the Economics Club of Washington D.C.

3:00 p.m. EST: October’s Consumer Credit (Risk: Neutral, Market Reaction: Moderate): Total outstanding consumer credit will likely decline for the 8^th consecutive month—a series record—after declining by -$14.8 billion in September.  The decline should come entirely from a decline in revolving credit—credit cards—while non-revolving credit should show a modest increment due to auto sales.  The current Bloomberg consensus forecast is for a total decline in credit of -$9.3 billion for October.  This data would be more significant if retail sales and personal sales data were not already known for the month.

5:45 p.m. EST: William Dudley, the NY Fed President, is attending Columbia University’s World Leaders Forum

Tuesday, Dec. 8

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number declined -0.1% compared to no change a week prior.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales rose 3.8% last week on a year over year basis.

10:00 a.m. EST: IBD/TIPP Economic Optimism Index (Risk: Neutral, Market Reaction: Marginal): IBD’s economic optimism index is not closely watched by markets, but it could provide us with some direction for Friday’s preliminary consumer sentiment index.

Wednesday, Dec. 9

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications rose 2.1% last week after dropping 5.5% a week prior.  Refinance applications climbed 1.7%, while purchase applications rose 4.1% on the back of attractive interest rates.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

10:00 a.m. EST: Wholesale Trade (Risk: Neutral, Market Reaction: Marginal): This indicator measure the level of inventories and sales by US wholesalers.  It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales.  It is important to note that this data is on a two month lag.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed an increment of 2.1 million barrels versus a jump of 1.0 million barrels a week prior.

Thursday, Dec. 10

8:30 a.m. EST: October’s International Trade Data (Risk: Neutral, Market Reaction: Moderate): The US trade deficit likely grew further in October on the back of an increment in imports, offset by a smaller increment in exports.  It is not unusual for the trade gap to widen during a recovery period.  However, the current Bloomberg consensus forecast is for a little changed trade deficit in October of $36.4 billion, compared to $36.5 billion in September.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 5K last week to 457K, after falling 35K a week prior. This is the lowest level reading since September 2008. But, a portion of this improvement could be attributable to strong seasonal adjustment factors due to annual deviations in the date of the Thanksgiving holiday, but there is no doubt the news is getting better.  Improving initial claims are indicative of fewer job losses in the monthly employment report; however, the job situation will get worse before it gets better.  The current Bloomberg consensus forecast is expecting claims to come in at 460K, an increase of 3K from last week.

9:00 a.m. EST: RBC Cash Index (Risk: Neutral, Market Reaction: Moderate): The Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index is a monthly measure of consumer attitudes toward investing, the economic outlook, and personal finances.  This index does hold some importance in so much that it tends to demonstrate a pretty significant correlation with the consumer sentiment index being released next week.

10:00 a.m. EST: Third Quarter Quarterly Services Survey (Risk: Neutral, Market Reaction: Marginal): The U.S. Consensus Bureau’s Quarterly Services Survey estimates total operating revenue with a breakdown in revenue by client type (i.e. government, business, consumers, and individuals).  The survey is specific to the following baskets of sectors: 1) Information, 2) Professional, Scientific, and Technical Services, 3) Administrative and Support and Waste Management and Remediation Services, 4) Hospitals and Nursing and Residential Care Facilities.  The 2Q09 survey showed revenues decreased for all sectors excluding hospital and nursing and residential care facilities.

10:30 a.m. EST: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

12:45 p.m. EST: Elizabeth Duke, a Federal Reserve Board Governor, will speak at the Chicago Fed’s mortgage foreclosure policy conference in Chicago.

2:00 p.m. EST: November’s Treasury Budget (Risk: Neutral, Market Reaction: Moderate): The Treasury Budget in November will likely show another record deficit.  In October—the first month of the government’s fiscal year—the deficit reached -$176.4 billion compared to -$155.5 billion a year prior.  The current Bloomberg consensus forecast for November is a deficit of -$135.0 billion, to help put this into perspective the average deficit over the past 10 years in November is -$68.4 billion.

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet shrank last week to US$2.183trn from US$2.189trn.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Dec. 11

8:30 a.m. EST: November’s Retail Sales (Risk: Neutral, Market Reaction: Significant): Several factors should help bolster retail sales in November including higher auto sales, new video game releases—Modern Warfare 2—, and higher gasoline prices.  However, early indicators toward consumer sales during the popular Black Friday weekend have been mixed.  It would appear discount stores sales continue to outperform their department and specialty store counterparts.  Look toward Tuesday’s Redbook and ICSC-Goldman Store Sales for additional clues toward this release.  The current Bloomberg consensus forecast is for an increase in headline retail sales of 0.9% versus 1.4% a month prior, while retail sales ex-autos is expected to rise 0.5%, compared to 0.2% in October.  This would be te fourth consecutive month of growth for retail sales ex-autos.

8:30 a.m. EST: November’s Import and Export Prices (Risk: Neutral, Market Reaction: Marginal): The rising cost of oil in November will undoubtedly place upward pressure on the import price index.  Lower natural gas prices during the month will help to offset some increments in other imported commodities including gold and copper, but the ex-petroleum price index should still remain positive. 

9:55 a.m. EST: Preliminary December Consumer Sentiment (Risk: Positive, Market Reaction: Moderate): December’s preliminary consumer sentiment should show at least a modest gain from November’s final reading of 67.4.  For hints toward the direction of this indicator look at Tuesday’s IBD/TIPP Economic Optimism Index and ABC News consumer comfort index released Tuesday evening.  The current Bloomberg consensus is for a reading of 68.2 compared to 67.4 in November.

10:00 a.m. EST: October’s Business Inventories (Risk: Positive, Market Reaction: Moderate): The current Bloomberg consensus forecast is for a decline in inventories of -0.2% compared to a drop of -0.4% a month prior.  Despite the consensus forecast, factory inventories, which rose +0.4% in October, realizing its first gain in 14 months, providing some upward momentum for the release.  Concurrently wholesale inventories are anticipated to fall -0.4%—released on Wednesday—, while retail trade is expected to decline by -0.1%

Enjoy the weekend!