Home > Economics Week Ahead > US Economics Week Ahead: The End is Near! (for the recession…)

US Economics Week Ahead: The End is Near! (for the recession…)

October 24th, 2009 Michael McDonough

This week’s most important economic data will likely come in the form of third quarter 2009’s advanced estimate of GDP, which should put an end to four consecutive quarters of declines.  The U.S. government’s ‘Cash for Clunkers’ program during the quarter should help to boost the personal consumption component of GDP, while inventories declining at a slower pace should provide a boost for that component.  Inventories do not need to turn positive to add to GDP they just need to fall at a slower pace.  Inventories are the difference between production and sales.  To highlight this point here is an excerpt from a recent Bank of America research report, “If my factory sells 10 wiggits per month, but is producing only 6 per month, then inventories fall by 4 per month. If sales stay at 10 and I want to slow the inventory depletion to 2 per month I need to raise production to 8.”

Also of note this week is September’s personal income and outlay data on Friday, which should show only a modest increase in income, while consumption should be down more significantly on the back of reduced auto sales stemming from the expiration of the U.S. government’s ‘Cash for Clunkers’ program a month earlier.  Other indicators of note include Tuesday’s S&P Case Shiller HPI and consumer confidence, Wednesday’s durable goods orders and new home sales data, Thursday’s jobless claims release, and finally the Chicago PMI on Friday.

The coming week also brings the market its fair share of earnings releases with more than 25% of the S&P500 and four Dow components reporting.    Some major companies include Exxon Mobile, Chevron, Procter & Gamble, Visa, General Dynamics, Met Life, and Verizon to name a few. Fed speak is relatively light this week ahead of the November 3rd through 4th FOMC meeting.

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

Monday, Oct. 26

8:30 a.m. EDT:  September’s Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has shown improvements over the preceding seven months and is expected to improve again in September from its reading of -0.9 in August.

10:30 a.m. EDT:  October’s Dallas Fed’s Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Marginal): This index is not highly publicized, and tracks manufacturing activity within the Dallas Feds jurisdiction.  Last month’s survey suggested “factory activity showed the first signs of bottoming out in September, according to the business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key indicator of current manufacturing activity, came in close to zero as the number of companies seeing increases and decreases was nearly equal.”

Tuesday, Oct. 27

7:45 a.m. EDT: 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 indicated a weekly increment of 0.2% in store sales compared to a gain of 0.6% a week prior.

8:55 a.m. EDT: 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 rose 0.5% last week on a year over year basis.

9:00 a.m. EDT: August’s S&P Case Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): The S&P Case Shiller HPI has demonstrated three consecutive months of gains, but could face some pressure in August after a disappointing FHFA HPI release for the month.  Only three components (Detroit, Las Vegas & Seattle) of the 20 city index demonstrated monthly declines in July.

10:00 a.m. EDT: October’s Consumer Confidence (Risk: Downside, Market Reaction: Significant): Higher energy prices and continued uncertainty over the economic outlook could place some continued pressure on the Conference Board’s measure of consumer confidence.  The current Bloomberg consensus forecast is for a reading of 54.0, compared to 53.1 in September.

10:00 a.m. EDT: State Street Investor Confidence Index (Risk: Neutral, Market Reaction: Marginal): The State Street Investor’s Confidence Index measures investors’ tolerance to risk. According to the State Street report, “After eight consecutive increases in Global Investor Confidence, which took the Index from an all-time low of 82.1 during the financial crisis to a five-year high of 122.8, institutional investors took a breather this month and consolidated their holdings of risky assets,” commented Froot. “This month’s reading of 118.1 is still comfortably in the range associated with the accumulation of risk exposures, as a reading of 100 signifies neither accumulation nor decumulation. However, there is a recognition that a portion of the recent rise in global equity prices can be attributed to liquidity expansion rather than fundamental opportunities. Institutional investors are pausing to assess this balance.”

10:00 a.m. EDT:  Richmond Fed’s Survey of Manufacturing Activity (Risk: Neutral, Market Reaction: Marginal): The Richmond Fed manufacturing activity index has been in positive territory since May, and should remain there this month based on what has been a strong new orders component.   According to the survey in August, manufacturing activity rose signaling a solid third quarter, while the new orders and employment components both experienced growth, and the price index slipped.

Wednesday, Oct. 28

7:00 a.m. EDT: 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 declined 13.7% after falling 1.8% a week prior due to climbing interest rates.  The refinance index fell 16.8%, while the purchase index fell 7.6%. Refinances made up 65.0% of all applications last week.

8:30 a.m. EDT: September’s Durable Goods Orders (Risk: Downside, Market Reaction: Significant): A drop in aircraft orders from Boeing could place some negative pressure on the index, while an increment in auto orders for the month could help to offset some of the decline.    The current Bloomberg consensus forecast is for an increase of 1.5%, after rallying 2.6% in August.  It will be important to monitor ex-transport orders, which tend to be less volatile, and were flat in August.

10:00 a.m. EDT: September’s New Home Sales (Risk: Neutral, Market Reaction: Significant): a 0.5% increment in housing starts for September  likely doesn’t bode well for the month’s new home sales data.  Nevertheless, the index should continue to rise, albeit at a slower pace.  The current Bloomberg consensus forecast is for an increase to a seasonally adjusted annual rate of 440K, compared to 429K in August.  Rising interests rates and the expected expiration of the first time home buyer tax credit may place some downward pressure on housing’s recovery.

10:30 a.m. EDT: 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 1.3 million barrels versus an increment of 0.4 million barrels a week prior.

Thursday, Oct. 29

8:30 a.m. EDT: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose last week by 11K to 531K, after falling 10K a week prior. Despite second derivative improvements these numbers still indicate further deterioration to upcoming payroll numbers, and the unemployment rate, which is very likely to exceed 10% in the coming months. The current Bloomberg consensus forecast is expecting a pullback in this week’s initial claims data to 525K from 531K.

8:30 a.m. EDT: 3Q09 Advanced Estimate of GDP (Risk: Upside, Market Reaction: Significant): Easy monetary and fiscal policies coupled with a turn in the inventory cycle should bring GDP growth into positive territory for the first time five quarters.  The current Bloomberg consensus forecast is for GDP growth of 3.0%.  The big test will be whether or not increments in final demand will be large enough to offset the eventual diminishing effects of fiscal and monetary policy over the coming quarters.

10:30 a.m. EDT: 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.

10:00 a.m. EDT:  October’s Kansas City Fed’s Survey of Manufacturers (Risk: Neutral, Market Reaction: Marginal): According to the most recent survey, “Tenth District manufacturing activity rebounded in September as firms’ orders picked up slightly, and expectations mostly held steady with last month’s positive outlook. Most price indexes in the survey inched higher, but still remained at fairly low levels.”  I anticipate this trend will continue to August.

4:30 p.m. EDT: 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 again declined last week to US$2.183trn from US$2.174trn a week prior.  The main catalyst behind the rise was an increase in the holdings of Treasury and mortgage bonds.  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, Oct.30

8:30 a.m. EDT: September’s Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant): Personal income likely experienced a modest gain during the month with the current Bloomberg consensus forecast indicating a gain of 0.0%. However, personal consumption during the month likely took a much larger hit primarily due to a reduction in car sales stemming from the expiration of the U.S. government’s ‘Cash for Clunkers’ program.  The current Bloomberg consensus forecast is for a decline of -0.5% for personal consumption.

8:30 a.m. EDT: Employment Cost Index (Risk: Neutral, Market Reaction: Marginal): The current Bloomberg consensus forecast for the ECI is a quarter over quarter change of 0.5%, compared to a second quarter increment of 0.4%. This index should continue to confirm that over the near-term the risk of deflation continues to outweigh that of inflation. Weakness in the labor market combined with cost cutting, affecting benefits, should continue to place pressure on this index.  This index includes wages, salaries, and benefits.

*9:45 a.m. EDT: October’s Chicago PMI (Risk: Neutral, Market Reaction: Moderate): The Chicago PMI measures business activity in the mid-West, and is released one business day prior to the national ISM index. *It is also important to note that the Chicago PMI is released several minutes early to subscribers of the service, so you could see reaction to the release starting at 9:42AM.  This index is considered a forward looking indicator to the national ISM, so any large unexpected shifts in the Chicago PMI could have an impact on trading.  The current Bloomberg consensus forecast is for a reading of 48.5, versus to 46.1 in September.  This index could face some negative pressure in October as its new orders index fell below 50 in September.  This index covers both the manufacturing and non-manufacturing sectors.

9:55 a.m. EDT: October’s Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): After a preliminary reading of 69.4 earlier this month—versus a final reading of 73.5 for September—, the Bloomberg consensus survey is anticipating a final reading of 70.0.  Looking back since June the preliminary number has been consistently revised up by the end of the month.

3:00 p.m. EDT: Farm Prices (Risk: Neutral, Market Reaction: Marginal): Given the relationship between farms prices and food prices, this index could have significant implications on future headline CPI.

Enjoy the weekend!

Retweet
Comments are closed.