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US Economics Week Ahead: A Deluge of Data

September 12th, 2009 Michael McDonough

After last week’s relatively light economic calendar, the market faces a deluge of data from nearly every facet of the economy. With that said this week’s most closely watched release will likely be Tuesday’s retail sales announcement, which is expected to show a +2.0% gain on the back of increased auto-sales and higher gas prices, but not on what would traditionally be back-to-school spending.  Other notable releases include Tuesday’s PPI & Empire State Manufacturing Survey, Wednesday’s CPI & Industrial Production data, and Thursday’s Housing Starts, Jobless Claims, and Philly Fed Survey releases.  The week concludes with a quadruple witching on Friday, which has the potential to bring unusual volatility and volumes to the market.

Over the next several months, the incremental improvements in the US housing market could begin to come under some pressure as the US government’s first time home buyer tax incentive program is set to expire on November 30th.   This deadline doesn’t leave new buyers much time to find and close on any new purchases, which should lead to a gradual unwinding of the program.  The first evidence of this could be seen in this month’s housing starts data, given the long lag between getting homes permitted and sold to buyers in time to qualify for the program.  This combined with the temporaneous effect of the government’s now expired ‘Cash for Clunkers’ could help catalyze a retrenchment, or at least place adverse pressure on the housing and manufacturing sectors amid a still weakening labor market.

Here is the rest of this week’s calendar:

Monday September 14th:

8:35AM: Fed Governor Elizabeth Duke speaks at an annual conference for CPA’s in Washington D.C. on “Regulatory Perspectives on the Changing Accounting Landscape”.

12:30AM: Atlanta Fed President Dennis Lacker speaks on “Choices in Financial Regulation” with Q&A at the Risk Management Association’s annual conference.

3:50PM: San Francisco Fed President Janet Yellen will discuss the US economic outlook to CFA analysts in San Francisco.

Tuesday September 15th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, 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 indicated a rise of 0.6% in store sales compared to an decline of -0.5% a week prior.

8:30AM: Producer Price Index (Risk: Neutral, Market Reaction: Significant): Rising energy prices from July to August will place upward pressure on August’s headline PPI number, while the core-PPI should remain largely unchanged.  The current Bloomberg consensus forecast is for a rise of +0.8% in the PPI, and +0.1% for the core number.

8:30AM: Retail Sales (Risk: Neutral, Market Reaction: Significant): What is typically a jump in August retail sales driven by increased back-to-school purchases will likely not materialize.  However, the index should experience relatively robust gains through a combination of mostly higher auto sales, due to the government’s ‘Cash for Clunkers’ program, and to some degree the pricing effect of rising gasoline prices.  The current Bloomberg consensus forecast is for an increment in retail sales of +2.0%, while retails sales ex-autos are anticipated to come in at +0.4%.

8:30AM: Empire State Manufacturing Survey (Risk: Neutral, Market Reaction: Moderate): The NY State Manufacturing Index should remain in positive territory in September, after its first positive reading in over a year last month.  This theory is supported by last month’s large increase in the survey’s new order index, which rose to 13.4 from 5.9 a month prior.  It will be important to monitor August’s new order index, which should remain positive, but may face some downward pressure due to strong seasonal adjustment factors. The current Bloomberg consensus forecast is for a September reading of 14.0, versus an August reading 12.1.

8:55AM: Redbook (Risk: Negative, 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 were down -2.4% last week on a year over year basis.

10:00AM: Business Inventories (Risk: Neutral, Market Reaction: Marginal): The current Bloomberg forecast is for a -0.9% decline in July’s business inventories.  If this release is indeed negative it will be the 12th consecutive month inventories have declined.  But, over the past several months, the inventory to sales ratio has been receding from its January 2009 high.

10:00AM: Chairman Ben Bernanke will deliver the same speech he gave at the Jackson Hole Symposium to the Brookings Institute, but Q&A is anticipated.

Wednesday September 16th:

7:00AM: MBA Purchase 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.  Last week the overall index resumed its upward trend, rising 17.0%.  The refinance index rose 22.5%, while the purchase index climbed 9.5%; these increments were primarily driven by falling mortgage rates and relatively low home prices.

8:30AM: Consumer Price Index (Risk: Neutral, Market Reaction: Significant): As with the PPI, August’s CPI release could face some upward pressure due to increases in fuel prices over the month; the Bloomberg consensus forecast is presently anticipating a +0.4% increment in the headline number.  At the core level, consumer prices should remain relatively steady with the current Bloomberg consensus forecast calling for an increment of just +0.1%.  Other factors that could impact this month’s release include upward pressure from increasing auto and tobacco prices.

8:30AM: Current Account (Risk: Neutral, Market Reaction: Marginal):  The 2Q09 current account deficit will likely fall to its lowest levels in several years, on the back of declining energy import prices during the quarter.  During 1Q09 the deficit stood at -US$102.7bn.

9:00AM: Treasury International Capital (TIC) Data (Risk: Neutral, Market Reaction: Marginal): This report highlights the flow of financial instruments to and from the U.S. It indicates foreign demand for U.S. financial instruments and thus tends to have a stronger impact on the dollar and the bond markets than it does on equities.  But, given the recent record levels for treasury auctions, it will be interesting to monitor foreign demand for US debt.

9:15AM: Industrial Production (Risk: Downside, Market Reaction: Significant): The current Bloomberg consensus forecast is for August’s industrial production to show an increase of +0.7%, compared to July’s increment of +0.5%.  A large portion of August’s increment is anticipated to come from increased auto production, which in my opinion, however, could be more than offset by weakness in other areas of manufacturing due to a reduction in hours worked for employees in the sector during the month.  The Bloomberg consensus forecast anticipates that capacity utilization will move to 69.0% in August from 68.5% a month prior.

10:30AM: 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 a decline of -5.9mn barrels versus a decline of -0.4mn barrels a week prior.

1:00PM: Housing Market Index (Risk: Neutral, Market Reaction: Marginal): The NAHB/Wells Fargo Housing Market Index is expected to show a modest gain on the back of tax credits, attractive mortgage rates, and low home prices.  The current Bloomberg consensus forecast is for a reading of 19 in September, compared to the previous month’s result of 18.  This index measures builders’ views over the conditions of the housing market; any reading below 50 implies their view is negative.  The index remains depressed primarily due to, improving, but still enormous inventory levels.

Thursday September 17th:

8:30AM: Housing Starts (Risk: Downside, Market Reaction: Moderate): Increased single-family starts will likely place upward momentum on the overall index with the Bloomberg consensus forecast presently anticipating a rise to 0.600mn units in August from 0.581mn units a month prior.  But, going forward there are some downside risks to this data due to the expiration of the government’s first time home buyer tax rebate in November.  What this means is that according to the NAHB, “July was probably the last month in which to get homes permitted and started in time for customers to take advantage of the incentive.”

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 20K to 550K. Claims should demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  The current Bloomberg consensus for this week’s initial claims number is 575K.  This week’s projected increment is partially due to the positioning of this year’s Labor Day Holiday.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 500K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.

10:00AM: Philadelphia Fed Survey (Risk: Neutral, Market Reaction: Moderate): The Philly Fed Index should continue last month gains with the current Bloomberg consensus survey indicating a reading of 8.0 for September compared to 4.2 in August.  This anticipated increment is on the back of the new order index’s strong performance in August moving to +4.2 from -2.2.  Given recent momentum the new orders index should also experience an additional rise this month.

10:30AM: 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.

4:30PM: 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.  Last week the Fed’s balance sheet rose again to US$2.072trn from US$2.069trn a week prior.  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 September 18th:

Quadruple Witching: Contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire today.  As a result, we could see an increased amount of volumes and volatility in the market, especially toward the end of the day.

Enjoy the weekend!

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