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US Economics Week Ahead: Is October the new September?

October 3rd, 2009 Michael McDonough

Based on last week’s negative performance on the back of several pieces of melancholy economic news, some investors may argue September has come late this year.  Looking ahead, we have a pretty quiet week on the data front, which may cause investors, still trying to heal from last week’s wounds, to place added emphasis on second tier indicators.  This week’s most important releases will be non-manufacturing ISM on Monday, consumer credit on Wednesday, chain store sales and jobless claims on Thursday, and international trade on Friday.  Over the coming weeks investors will continue gauging the magnitude of the pullback on the overall economy stemming from the cessation of ‘Cash for Clunkers’, along with potential damages from the upcoming expiration of the first time home buyer tax credit.

This week also brings with it the start of 3Q09 earnings, with Alcoa, Pepsi, Costco, and Yum all scheduled to announce this week.  Also this week the Senate Finance Committee is expected to vote on the Baucus Bill for healthcare reform.

Over this weekend G7 finance ministers and central bankers are meeting, and will likely release a communiqué that has the potential to generate some headlines.  This will be followed up by IMF/World Bank meetings in Turkey on Tuesday and Wednesday.

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

Monday October 5th:

10:00AM: ISM Non-Manufacturing (Risk: Neutral, Market Reaction: Significant): The non-manufacturing ISM should continue its upward momentum, potentially moving above the 50 breakeven point with a Bloomberg consensus forecast of 50.0 compared to 48.4 in August.  But, August’s new orders index of 49.9 should decrease the odds of any large jump in the headline number.  This month it will be important to pay close attention to the forward looking new orders index and the prices paid components.  Additionally, given the lack of data this week and last week’s negative surprises more emphasis than usually may be placed on this release as the market continues to search for the light at the end of the tunnel.

Tuesday October 6th:

7:45AM: ICSC-Goldman Store Sales (Risk: Negative, 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 weekly increment of 0.1% in store sales compared to a decline of -2.0% a week prior.

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 -2.2% last week on a year over year basis.

9:45AM: Thomas Hoenig, Kansas City Federal Reserve Bank President, is giving a speech at an economic forum sponsored by the bank’s Denver branch.

Wednesday October 7th:

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’s data showed a decline of 2.8% despite lower mortgage rates.  The refinance index fell 0.8%, while the purchase index dropped 6.2%.Refinances made up 65.3% of all applications last week.

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 rise of 2.8mn barrels versus a rise of 2.8mn barrels a week prior.

3:00PM: Consumer Credit (Risk: Neutral, Market Reaction: Moderate): August consumer credit should once again show a significant decline due to bank’s unwillingness to lend and apprehensive consumers’ hesitations toward borrowing.  The current Bloomberg consensus forecast is for a decline in credit of –US$8.5bn, versus –US$21.6bn in July.  This would be the 7th consecutive month of declines for the index.  The chances of a consumer led recovery seem even more remote when you take into account for the dwindling consumer credit market.

Thursday October 8th:

Chain Store Sales (Risk: Neutral, Market Reaction: Significant): Same store sales may have improved slightly in September from August.  We should continue to see discount chains outperforming luxury chains as consumers become increasingly budget conscious.  It is important to note that Wal-Mart is no longer included in this reelase. 

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose last week by 17K to 551K. Initial 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.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 480K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.  The current Bloomberg consensus for this week’s initial claims release is 540K. But, initial claims could face some upward pressure during the month as an increased number of lay-offs were announced to take place.

10:00AM: RBC Cash Index (Risk: Neutral, Market Reaction: Marginal): 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.

10:00AM: Wholesale Trade (Risk: Neutral, Market Reaction: Moderate): 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.  However, continued weakness in the labor market coupled with no indication of a rebound in consumer spending this index could face some negative pressure.  It is also important to note that this data is on a two month lag.

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.  The Fed’s balance sheet declined last week to US$2.123trn from US$2.141trn a week prior.  This was the first decline in eight weeks.  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.

8:45PM: Thomas Hoenig, Kansas City Federal Reserve Bank President, is giving a speech at an economic forum sponsored by the bank’s Oklahoma City branch.

Friday October 9th:

8:30AM: International Trade (Risk: Neutral, Market Reaction: Moderate): Higher energy import prices will likely lead to further deterioration of the US trade balance with the Bloomberg consensus forecast projecting a decline of –US$33.0bn for August, compared to –US$32.0bn a month prior.  It will be important to monitor the levels of US exports, as a weakening US$ could have helped increase international demand for US products.  Also, during this time of year imports would typically experience some increments due to retailers stocking up for the holiday season, however, given depressed consumer demand and a morose outlook for the holiday season this effect will likely remain subdued.

Enjoy the weekend!

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