Home > Economics Week Ahead > US Economics Week Ahead: Retailers not Dreaming of a White Christmas

US Economics Week Ahead: Retailers not Dreaming of a White Christmas

December 19th, 2009 Michael McDonough

Retailers are not dreaming of a white Christmas.  Whether a snowstorm impacting the Mid-Atlantic region this weekend will impact an arguably lackluster holiday shopping season is yet to be seen.  But, bad weather does have a tendency of keeping would be shoppers home, however, these shoppers will still have access to online stores, but given the proximity to the holiday, would likely be forced to dish out expedited shipping charges.  Despite the shortened week the market will be receiving several early Christmas presents including November’s new and existing home sales data, durable goods orders, personal income and outlays, and finally December’s final consumer sentiment reading.  Given the holiday many market participants will likely be away from their desks, which could cause higher than usually volatility on the back of light buying.  Investors will also be paying close attention to Thursday’s jobless claims data after disappointing data last week.

On the earnings front we will be hearing from Micron (MU), Red Hat (RHT), Walgreen (WAG), and Conagra (CAG).  Investors will also want to look for headlines from Iraq where it has been reported that Iran took over an oil well in the south of the country.  If the situation escalates, geopolitical instability in the Middle East not only has the potential cause a spike in oil prices, but could draw investors away from risk.  On oil, OPEC is scheduled to meet next week, and will likely keep production unchanged.  Enjoy the holidays.

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

Monday, Dec. 21

8:30 a.m. EST: November’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 been trending upwards over the preceding nine months, and should show some improvement in November from its reading of -1.08 in October.

Tuesday, Dec. 22

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 rose +0.4% compared to a drop of -1.3% a week prior.

8:30 a.m. EST: Third Quarter 2009 GDP (Risk: Neutral, Market Reaction: Moderate): I anticipate that very little will change from the BEA’s preliminary estimate of third quarter 2009 GDP at 2.8%.  The preliminary estimate was down markedly from the BEA’s advanced estimate of 3.5%.  The current Bloomberg consensus forecast is for a reading of 2.8%.  This release should be a non-event barring any unforeseen revisions.

8:30 a.m. EST: Third Quarter Revised Corporate Profits (Risk: Neutral, Market Reaction: Marginal): The importance of this release is somewhat muted given its timing toward the end of the 3Q09 earnings season.  However, since these profits tie into GDP growth, and do not always move lock step with individual corporations’ aggregate earnings data, the data can have an unexpected impact on growth.  The original 3Q09 corporate profits release indicated profits grew at 10.6%.

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 1.5% last week on a yearly basis.

10:00 a.m. EST: November’s Existing Home Sales (Risk: Neutral, Market Reaction: Significant): Pending home sales rose 3.7% in October, which should bode well for November’s existing home sales.  Existing home sales jumped 10.1% in October, primarily due to buyers rushing contracts to take advantage of the first time home buyer tax credit prior to its original expiration in November.  The supply of existing homes continued to fall to 7.0 months from 8.0 months in September. The current Bloomberg consensus forecast is for a rate of existing home sales of 6.25 million in November versus 6.10 million in October.

10:00 a.m. EST: FHFA House Price Index (Risk: Neutral, Market Reaction: Moderate): The Federal Housing Finance Agency (FHFA) monthly house price index is compiled by using loan data provided by Fannie Mae and Freddie Mac, which means all the data within the index consists of conventional mortgages within the limitations of the GSE’s.  The FHFA’s monthly purchase only index was unchanged in September, while August’s reading was revised down to -0.5% from -0.3%.  The monthly index tends to be relatively volatile, but should continue to trend up in-line with the Case-Shiller home price index.

Wednesday, Dec. 23

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 0.3% last week after rising 8.5% a week prior.  Refinance applications rose modestly be 0.9%, while purchase applications fell -0.1%.  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.

8:30 a.m. EST: November’s Personal Income and Outlays (Risk: Neutral, Market Reaction: Significant): Personal income should continue to extend it gains, growing for a fifth consecutive month, while spending should also rise on stronger motor vehicle sales during November.  More importantly, headline and core CPI should remain relatively tame, placing inflationary concerns on the back burner, at least for the time being.  The current Bloomberg consensus forecast is for an increase in income of 0.5% (0.2% in October), and an increase in spending of 0.6% (0.7% in October), while core PCE is anticipated to rise a modest 0.1% (0.2% in October) in November.

9:55 a.m. EST: December’s Final Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): December’s preliminary consumer sentiment index jump to 73.4 from a reading of 67.4 in November.  Improving market conditions and some better than anticipated labor data during the month should provide a modest bump in December’s final sentiment reading.  The current Bloomberg consensus forecast is for a reading of 73.5.

10:00 a.m. EST: November’s New Home Sales (Risk: Neutral, Market Reaction: Significant): As with existing home sales, new home sales likely rose in November.  The rate of new home sales in October was the highest rate since September 2008, and November’s release should be even higher.  The current Bloomberg consensus forecast is for the rate of new home sales to increase to 440K from 430K a month prior.

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 unexpected decline of -3.7 million barrels versus a drop of -3.8 million barrels a week prior.

Thursday, Dec. 24

8:30 a.m. EST: November’s Durable Goods (Risk: Neutral, Market Reaction: Moderate): Durable goods orders should recover a portion of October’s -0.6% decline on the back of stronger motor vehicle sales during the month.  The current Bloomberg consensus forecast is for an increment in durable goods orders of 0.5%, versus a drop of -0.6% a month prior. Unfortunately, last month’s number excluding the volatile transportation component fell -1.3%.  Additionally, an unexpected jump in civilian aircraft orders last month (+50%) may have been overstated and I anticipate this could lead to a strong drop of this component in November.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose 7K last week to 480K, after rising 17K a week prior. Despite the increment in last week’s claim data the four week moving average improved to 467,500 from 473,750.  Improving initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, the job situation will still get worse before it gets better.  The current Bloomberg consensus forecast is expecting claims to come in at 470K, a decrease of -10K from last week.

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.

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 jumped last week to US$2.218trn from US$2.169trn, due increased purchases of agency MBS.    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. 25

All Markets Closed—Merry Christmas!

Enjoy the weekend!

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