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US Economics Week Ahead: Nothing’s Certain

January 23rd, 2010 Michael McDonough Comments off

Over the past two weeks new uncertainties have begun pouring into the markets, like the deluge of rain currently striking the west coast—I spent part of last week in Los Angeles.  However, unlike what’s happening over the west coast, the storms investors faced were mostly avoidable.   It all began with legitimate concerns over tightening Chinese monetary policy, but quickly moved to the avoidable with doubts over the reconfirmation of Chairman Bernanke, and the potential impact of President Obama’s imprudent policy agenda toward the financial sector.  Barring these uncertainties, this week’s full calendar of economic and earnings data should help shed some light on the health of the U.S. economy and the sustainability of the current recovery.

On the economic side, this week’s main event should be Wednesday’s FOMC announcement, where the fed should continue making incremental changes to the statement bringing us closer to tightening—which I still believe is a ways off.  However, the meeting may be trumped by news of Chairman Bernanke’s reconfirmation, which could take place as early as this week.  Despite what is turning into a bit of a political circus I do expect Mr. Bernanke will be reconfirmed.

Moving away from the Fed the market will be focusing on the first estimate of fourth quarter GDP on Friday, and critical housing data being released throughout the week.  GDP growth should exceed 4%, but many will argue over the sustainability of this growth, which is being heavily supported by accommodative fiscal and monetary policies.  Housing data will likely be mixed with December’s existing home sales coming under some pressure after the would-be expiration of the first time home buyer tax credit.

On the earnings front we should be hearing from almost a quarter of the S&P 500 with some big names including Amazon (AMZN), Apple (AAPL), AT&T (T), Boeing (BA), Caterpillar (CAT), Chevron (CVX), and Raytheon (RTN), Research In Motion (RIMM),Verizon (VZ), Yahoo (YHOO).  Other items that will likely drive headlines this week include President Obama’s State of The Union Address, the World Economic Forum in Davos, and an Apple product release (a tablet computer?).  Finally, the central banks of Japan (Monday & Tuesday) and New Zealand (Thursday) are schedule to meet next week, and could drive some headlines

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

Monday, Jan. 25

10:00 a.m. EST: December’s Existing Home Sales (Risk: Negative, Market Reaction: Significant): What would have been the expiration of the first time home buyer tax credit in November could place some downward pressure on December’s existing home sales.  The original rush of home buyers, looking to take advantage of what was an expiring program, have already finished their purchases.  The extension/expiration of the program should eventually help stoke sales, but there will likely be a delay before a new group of home buyers enters the market.  I should also note that increased foreclosure activity during the month, combined with what I anticipate will be weak sales, could increase the inventory of homes for sales.  I expect we could also see some weakness in existing home values.  The current Bloomberg consensus forecast is for existing home sales to decline to 6.1 million in December from 6.5 million a month prior.  Recently, home buyers have been more enticed to purchase existing homes over new homes as they tend to be generally cheaper.  I should also note that the index of pending home sales plunged -16.0% in November, which is an ominous sign.

10:30 a.m. EST: January’s Dallas Fed’s Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Marginal): This index is not highly publicized, but tracks manufacturing activity within the Dallas Feds jurisdiction.  Last month’s survey suggested, “Texas factory activity was flat in December…. The production index, a key indicator of state manufacturing conditions, came in close to zero in December, suggesting output held steady after growing in November for the first time since July 2008.  All indexes for future activity strengthened substantially in December, suggesting a more upbeat six-month outlook. The majority of respondents expect increases in production, new orders and shipments in the next six months. The future business activity index climbed to its highest level in nearly three years, and 41%”

Tuesday, Jan. 26

FOMC Meeting Begins

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.  Last week’s number rose 2.0% compared to a drop of -3.0% 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 0.9% last week on a yearly basis.

9:00 a.m. EST: November’s S&P Case Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): It will be interesting to see what impact the would-be expiration of the first time home buyer tax credit will have on November’s housing prices.  Will sellers looking to sell their homes prior to the expiration have lowered prices or would a surge of buyers on the market help buoy home prices?  In October the Case Shiller Home Price Index ended five consecutive months of gains, lending some credence to the argument home sellers be lowering prices to liquidate their homes.

10:00 a.m. EST: January’s Consumer Confidence (Risk: Neutral, Market Reaction: Moderate): Consumers continue to face a barrage of headwinds and tailwinds, which makes forecasting a rather volatile consumer confidence index a tough task.  Nevertheless, I anticipate that tailwinds will have a slight edge this month marginally pushing up the index.  The current Bloomberg consensus forecast is for a reading of 53.5, versus 52.9 in December.  Most of this index’s strength has been coming from its expectations component, while the present conditions index has moved back near interim lows.  This index tends to be closely correlated with ABC News comfort index and the Reuters/University of Michigan consumer sentiment index.

10:00 a.m. EST: November’s FHFA House Price Index (Risk: Neutral, Market Reaction: Marginal): Unlike the Case Shiller Index the FHFA House Price Index rose by 0.6% on a monthly basis in November.  However, like the Case Shiller Index, it will be interesting to monitor what impact the would-be expiration of the first time home buyer tax credit will have on November’s housing prices.

10:00 a.m. EST: January’s 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 in December, “This month’s up-tick in global investor confidence stemmed largely from an improvement in the mood in Asia, where risk appetite rose to an eight-month high,” commented Froot. “Elsewhere portfolio reallocations were modest. With three of the four indices over the neutral level of 100, institutions are continuing to add to their risky asset positions, but at a slower pace than was evident earlier in the year. Investors will be watching for signs of renewed economic growth, and well-designed exit strategies from policy makers, before making more significant reallocations towards risk in 2010.”

10:00 a.m. EST: January’s Richmond Fed’s Survey of Manufacturing (Risk: Neutral, Market Reaction: Marginal): The survey hit a soft patch last month after seven months of expansion.  According to the report, “Manufacturing activity in the central Atlantic region pulled back in December from positive territory after expanding during the previous seven months, according to the Richmond Fed’s latest survey. All broad indicators of activity — shipments, new orders and employment — landed in negative territory. Most other indicators also suggested additional softness. Capacity utilization turned negative following seven months of improvement, while backlogs held steady. Vendor delivery times were virtually unchanged, while manufacturers reported slightly quicker growth in inventories.”

Wednesday, Jan. 27

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tend to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications rose 9.1% last week after rising 14.3% a week prior.  Refinance applications jumped 10.7%, while purchase applications rose 4.4%.  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.   The 4wk moving average of all mortgages was down 1% through the week of January 15th.

10:00 a.m. EST: December’s New Home Sales (Risk: Negative, Market Reaction: Significant): Unlike, existing home sales, new home sales could experience a bit of a bounce in December after several months of relatively low readings.  However, the sharp drop-off in pending home sales(-16% in November) combined with what would have been the expiration of the first time home buyer tax credit could place some pressure on the index, despite a rather optimistic consensus forecast.  It is true that the tax credit had a larger impacted on existing, but I anticipate there should be at least a marginal impact.  The current Bloomberg consensus forecast for new home sales is 372K in December, versus 355K in November.

10:00 a.m. EST: December’s Mass Layoff Activity (Risk: Neutral, Market Reaction: Marginal): This data from the BLS will likely continue to show that mass layoff activity is subsiding.

10:00 a.m. EST: Timothy Geithner, the U.S. Treasury Secretary, testifies before House Oversignt Committee on AIG

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’s report showed a decline of -0.4 million barrels versus a rise of 3.7 million barrels a week prior.

2:15 p.m. EST: FOMC Announcement (Risk: Neutral, Market Reaction: Significant): It is hard to say whether the outcome of this meeting or the situation around Mr. Bernanke’s reconfirmation will garner more headlines in the press.  With that said I expect no change in policy, and nothing more than incremental changes to the FOMC’s statement (i.e. acknowledging recent improvements and highlighting risks).  I should also note that given this is the first meeting of 2010 the Fed will have a new voting rotation.  For those interested the new voters will be Boston’s Eric Rosengren, Cleveland’s Sandra Pianalto, St. Louis’ James Bullard, and Kansas City’s Thomas Hoenig.  As a side note, if Chairman Bernanke was not to be reconfirmed and Vice-Chairman Donald Kohn was to take his place, Kohn’s term is set for renewal by President Obama in June, which in theory could create another circus.  I personally expect Mr. Bernanke will be reconfirmed, but sadly I don’t have a vote.

9:00 p.m. EST: President Obama delivers his State of the Union Address to Congress

Thursday, Jan. 28

8:30 a.m. EST: December’s Durable Goods Orders (Risk: Neutral, Market Reaction: Moderate): Stronger aircraft orders during the month should help bolster the index after rising 0.2% in November.  The current Bloomberg consensus is for an increase in December’s durable goods orders of 2.0%—I believe this may be slightly optimistic.

8:30 a.m. EST: December’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 generally trending up over the preceding ten months, and could show a marginal improvement in December from its reading of -0.32 in November.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose an unexpected 36K last week to 482K, after rising 11K a week prior.  The four week moving average rose to 448,250 from 440,750.  An improving trend in initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, given the still elevated number of claims the job situation will get worse before it gets better.  The current Bloomberg consensus is for an initial jobless claims reading of 440K on Thursday.

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.

11:00 a.m. EST: Kansas City Fed’s Manufacturing Survey (Risk: Neutral, Market Reaction: Marginal): Manufacturing growth remained positive, but moderate somewhat in the region in December.  According to the survey, “Growth in Tenth District manufacturing activity moderated somewhat in December, and producers were slightly less optimistic about the months ahead, with few planning major capital expenditures. Price indexes remained mostly stable.”

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 fell from a record $2.274 trillion to $2.233 trillion last week.  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, Jan. 29

8:30 a.m. EST: First Estimate 4Q09 GDP (Risk: Neutral, Market Reaction: Significant): The current Bloomberg Consensus forecast is for fourth quarter GDP growth to come in at 4.5%, versus 2.2% a quarter prior.  Personally, I believe this forecast may be slightly too optimistic, and expect the number to be closer to 4%.  Slower inventory liquidations combined with a jump in consumption should prove to be the quarter’s biggest growth engines.   While on the surface the number will look positive, questions will be asked about the sustainability of this growth.  A portion of this growth is still being supported through accommodative fiscal and monetary stimulus, which will eventually begin to wane.  For more on this please see my piece ‘Looking at 2010’s Outlook and Risks’.  I expect GDP growth to peak in either 4Q09 or 1Q10 then gradually diminish throughout the remainder of the year, albeit remaining positive.  In terms of the Fed, relatively tepid growth in a post recession period combined with ultra-high unemployment and subdued inflation should convince the fed to remain on hold through most of 2010.  After the release, don’t be surprised to see a barrage of experts analyzing the details for clues over the sustainability of this growth—you know where I stand.

8:30 a.m. EST: 4Q09 Employment Cost Index (Risk: Neutral, Market Reaction: Marginal): Mostly stagnant salaries and wages, offset by some potential increases in benefit payments, should lead to only a modest increment in fourth quarter employment costs.  In the third quarter the index rose 0.4% indicating that wage pressure remains relatively benign.

*9:45 a.m. EST: 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 ISM. *I should note that the Chicago PMI is released several minutes early to subscribers, so the market could begin reacting to the data as early as 9:42 a.m.  The Chicago PMI is considered a forward looking indicator to the national ISM, so any large unexpected shifts in the Chicago PMI could impact trading.  The current Bloomberg consensus forecast is for a reading of 57.0, versus to 60.0 in December.  The PMI covers both the manufacturing and non-manufacturing sectors.

9:55 a.m. EST: January’s Final Consumer Sentiment (Risk: Neutral, Market Reaction: Moderate): January’s final consumer sentiment release will likely be mostly unchanged from the preliminary reading of 72.8.  The index has been trending up, but concerns over the job market and other adverse factors are limiting the upside.  The current Bloomberg consensus forecast is for a final reading of 73.0.

3:00 p.m. EST: January’s 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!

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Chicago PMI Moves Higher

December 30th, 2009 Michael McDonough Comments off

The Chicago PMI’s better than anticipated reading of 60.0 in December from 56.1 a month prior continues to indicate improving business conditions throughout the Chicago area–and a potentially positive forward looking indicator toward December’s ISM. All of the indicator’s components, excluding inventories, have moved above the break-even point of 50. The most noteworthy jump was in the employment index, which rose to 51.2 from 41.9 a month prior. This is the first time the Chicago PMI’s employment index has demonstrated growth since November 2007-a potential positive for payrolls.

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US Economics Week Ahead: Quiet for the Holidays

December 24th, 2009 Michael McDonough 2 comments

The last week of 2009 bears some good news for investors, and that is there isn’t much of it.  The week ahead could very well be the quietest week of 2009.  However, not all is still, there are several quasi-important releases related to housing, consumer confidence, and manufacturing.  Data-centric investors will be analyzing the Dallas and Kansas City fed’s manufacturing reports along with the Chicago PMI for clues toward December’s ISM reading.  The week’s most lauded release should be December’s consumer confidence report on Tuesday.  Confidence should see a nice jump on what is generally perceived as an ongoing economic recovery.  Jobless claims could face some pressure this week on the back of inclement weather in the northeast, which has the potential to reduce employment in weather sensitive industries.  The treasury will be auctioning $118bn in notes during the week tying the record (set last month); the results of this auction could have some impact on markets.  Also, be on the lookout for after Christmas sales by retailers looking to bolster sales and attract customers who received store gift cards in their stocking.  In any case, enjoy the quiet week and have a great holiday!

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

Monday, Dec. 28

10:30 a.m. EST: December’s Dallas Fed’s Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Marginal): This index is not highly publicized, but tracks manufacturing activity within the Dallas Feds jurisdiction.  Last month’s survey suggested, “Texas factory activity showed its first signs of growth in more than a year, according to business executives responding to November’s Texas Manufacturing Outlook Survey. The production index, a key indicator of state manufacturing conditions, turned positive for the first time since July 2008. Other key indexes of current factory activity—including capacity utilization, shipments, new orders and growth rate of orders—also moved into positive territory.

4:30 p.m. EST: Fed Balance Sheet & Money Supply—Prior Week’s Release (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.

Tuesday, Dec. 29

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 +0.6% compared to a drop of +0.4% 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 1.9% last week on a yearly basis.

9:00 a.m. EST: October’s S&P Case-Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): With the FHFA House Price Index moving higher in October after posting two weaker months, and  the Case-Shiller’s general upward trend over the prior five months—rising 3.1% during the third quarter—we should see another gain in October.

10:00 a.m. EST: December’s Consumer Confidence (Risk: Neutral, Market Reaction: Significant): An increment in the Reuters/University of Michigan consumer sentiment index to 72.5 from 67.4 in December should bode well for consumer confidence.  An improvement in confidence would be in-line with what is generally perceived as an economic recovery.   The current Bloomberg consensus forecast is for a reading of 47.5 compared to November’s reading of 53.0.

10:00 a.m. EST: December’s 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, “Across all regions, institutional investors are largely treading water; neither increasing nor reducing their aggregate holdings of risky assets,” commented Froot. “However, the aggregate figures mask some country- and region-specific views. This month, for example, institutional investors aggressively pared their holdings in selected markets, such as Australia, while continuing to add to their emerging markets holdings. Overall, investors are displaying some caution about the current level of equity valuations, and a desire to see more evidence of real economic activity and aggregate demand, particularly in the US, before adding to equity exposures.”

Wednesday, Dec. 30

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 fell 10.7% last week after rising 0.3% a week prior.  Refinance applications fell 10.1%, while purchase applications dropped -11.6%.  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.

9:45 a.m. EST: 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 ISM. *I should note that the Chicago PMI is released several minutes early to subscribers, so the market could begin reacting to the data as early as 9:42 a.m.  This index is considered a forward looking indicator to the national ISM, so any large unexpected shifts in the Chicago PMI could impact trading.  The current Bloomberg consensus forecast is for a reading of 54.9, versus to 56.1 in November.  The PMI covers both the manufacturing and non-manufacturing sectors.

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 -4.9 million barrels versus a drop of -3.7 million barrels a week prior.

3:00 p.m. EST: 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.

Thursday, Dec. 31

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 28K last week to 452K, after rising 17K a week prior.  The four week moving average improved to 465,250 from 467,500.  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.  Last week’s inclement weather could place some pressure on this week’s claims data.

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.

11:00 a.m. EST: December’s Kansas City Fed Manufacturing Survey (Risk: Neutral, Market Reaction: Marginal): Data-centric investors will be looking at the Kansas City Fed’s mostly overlooked manufacturing survey for clues toward December’s ISM release.  Specifically, these investors will be watching the surveys new orders and shipments components.

4:30 p.m. EST: Fed Balance Sheet & Money Supply—Current Week’s Release (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, Jan. 1

All Markets Closed—New Year’s Day!

Enjoy the weekend!

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US Economics Week Ahead: Jobs to the Rescue?

November 28th, 2009 Michael McDonough Comments off

This week investors face a barrage of data in addition to Chairman Bernanke’s Senate confirmation hearing.  On the economic front, Friday’s employment report should steal the show followed closely Tuesday’s manufacturing ISM release. Both the manufacturing and non-manufacturing ISM reports have indicated expansion over the past three months, and should again in November, albeit at a potentially slower pace due to some weakness in the Fed districts’ manufacturing surveys during the month.

Leading up to Friday’s employment report investors will be paying close attention to the ADP and both the ISM and Non-ISM employment indices, which have the potential to sway the current market consensus forecast of a -100K decline in payrolls. Other notable indicators this week include Monday’s Chicago PMI; Tuesday’s motor vehicle sales, construction spending, and pending home sales; Wednesday’s Beige Book; Thursday’s jobless claims and non-manufacturing ISM release; and finally Friday’s factory orders.

Other potential headline drivers this week include Fed talk from Charles Plosser and Jeffrey Lacker, the start of the Senate’s debate on healthcare, President Obama’s job’s forum, and Treasury Secretary Timothy Geithner’s testimony before the Senate Agriculture Committee Wednesday.

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

Monday, Nov. 30

*9:45 a.m. EST: November’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 ISM. *I should note that the Chicago PMI is released several minutes early to subscribers, so the market could react at 9:42 a.m. on the news.  This index is considered a forward looking indicator to the national ISM, so any large unexpected shifts in the Chicago PMI could impact trading.  The current Bloomberg consensus forecast is for a reading of 53.0, versus to 54.2 in October.  The PMI could experience some upward momentum stemming from a 15 point increase in the new orders index.  The PMI covers both the manufacturing and non-manufacturing sectors.

10:30 a.m. EST: November’s Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Moderate): This index is not highly publicized, and tracks manufacturing activity within the Dallas Feds jurisdiction.  Last month’s survey suggested, “Texas factory activity declined in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index—a key indicator of current manufacturing activity—edged further into negative territory, suggesting output in October contracted after remaining stable in September.”

3:00 p.m. EST: 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.

Tuesday, Dec. 1

November’s Motor Vehicle Sales (Risk: Neutral, Market Reaction: Moderate): Motor vehicle sales will likely edge down slightly in November, which is historically a weak month for auto sales.  Auto sales climbed 17.2% in October.  The current Bloomberg consensus forecast is for auto sales of 7.75 million compared to 7.90 million in October.  However, it should be noted that if this forecast is realized, then auto sales would finish positive for the first time on an annual basis since November 2007.

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 indicated no change in store sales compared to a decline of -0.1% a week prior.

8:55 a.m. EST: 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 2.8% last week on a year over year basis.

10:00 a.m. EST: November’s ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): The ISM could face some downward pressure during the month after other manufacturing indices including the NY and Richmond Fed indices experienced declines in November.  It will also be important for investors to pay close attention to the forward looking new orders index, along with the employment index for clues towards Friday’s payroll release.  The current Bloomberg consensus forecast is for a reading of 55.0 versus 55.7, a month prior.  The forecast range is from 53.8 to 56.0.

10:00 a.m. EST: October’s Construction Spending (Risk: Neutral, Market Reaction: Marginal): Construction spending will likely decline modestly after rising 0.8% in September.  Construction spending was revised down in August from +0.8% to -0.1% after experiencing a surprise gain in September.  The current Bloomberg consensus forecast   is for a decline in spending of -0.4%.

10:00 a.m. EST: October’s Pending Home Sales (Risk: Neutral, Market Reaction: Moderate): Pending home sales have been on a tear providing plenty of momentum for existing and new home sales.  Pending home sales rose 6.1% in September, which was the index’s 8th consecutive month of gains for the index—the longest streak in the index’s history.

12:20 p.m. EST:  Charles Plosser, the Philadelphia Federal Reserve Bank President, will discuss the economic outlook.

Wednesday, Dec. 2

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 fell 4.5% last week after dropping 2.5%% a week prior.  Refinance applications dropped 9.5%, while purchase applications rose 9.6%.  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.

7:30 a.m. EST: Challenger Job Cut Report (Risk: Neutral, Market Reaction: Marginal): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs.  Meaning layoffs announced in November may not actually take place until December, or even take place slowly over an extended period of time.

8:15 a.m. EST: ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP Employment report is considered a good window into Friday’s critical payroll number.  Any significant swings in this release combined with unexpected shifts in the manufacturing and non-manufacturing ISM employment indices could shift the consensus forecast for Friday’s employment release.

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 1.0 million barrels versus a decline of -0.9 million barrels a week prior.

2:00 p.m. EST: Beige Book (Risk: Neutral, Market Reaction: Moderate): Anecdotal evidence toward growth in the Fed’s Beige Book has slowly been turning more positive, which has recently been demonstrated through other economic indicators.  This report is typically released two weeks prior to FOMC meetings.

Thursday, Dec. 3

Ben Bernanke, Federal Reserve Chairman, is scheduled to appear for a confirmation hearing for the Senate Banking Committee.

President Obama will be holding a conference with leaders from the business, labor, finance and the nonprofit sectors.

Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): This survey conducted by Monster Worldwide Inc. measures online job demand.  According to the company, “The rise in the October Index, along with an improvement in the annual rate, indicate a mild expansion in the underlying employer demand for workers” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide. “While the decline in consumer confidence has likely contributed to reduced job demand in the retail and hospitality sectors, employers are actively recruiting in the healthcare and public sectors, resulting in stability of the overall Index.”

November’s Chain Store Sales (Risk: Neutral, Market Reaction: Moderate): US chain store sales should remain relatively flat to up modestly during the month on the back of mixed retail results.  Relatively strong performance in the ICSC-Goldman Sachs weekly chain store sales index should bode well for retailers, but numerous headwinds still exist, including a weak labor market and wavering consumer confidence reducing spending.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 35K last week to 466K, after showing no change a week prior. This is the lowest level reading since September 2008. But, a portion of this improvement was due to a strong seasonal adjustment factors due to annual deviations in the date of the Thanksgiving holiday—this could add some volatility to the index next week.  Nevertheless, claims continue to trend down and are indicative of fewer job losses in the monthly employment report, however, the job situation will still continue to get worse before it gets better.  The current Bloomberg consensus forecast is expecting claims to come in at 485K, an increase of 19K form last week.

8:30 a.m. EST: Final Third Quarter Productivity and Costs (Risk: Neutral, Market Reaction: Moderate): The recent revision of third quarter GDP to 2.8% from 3.5%, will likely lead to a minor downward revision to last quarter’s stellar productivity number.  The Bloomberg consensus forecast is expecting a revised quarterly increase in productivity of 8.6%, compared to the original release indicating a jump of 9.5%. But, strong gains in productivity could cause employers to delay hiring as they are now receiving more output from fewer workers.  The Bloomberg consensus forecast is also anticipating an upward revision to unit labor costs from -5.2% to -4.2%.

10:00 a.m. EST: November’s ISM Non-Manufacturing Index (Risk: Neutral, Market Reaction: Significant): The ISM non-manufacturing index should experience a modest rise during the month, realizing the third consecutive month of a reading over 50.  It will also be important to monitor the index’s employment component, which could impact Friday’s employment situation forecasts.  The current Bloomberg consensus forecast is for a reading of 52.0 compared to 50.6 in October. 

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 shrank last week to US$2.189trn from US$2.192trn, after ballooning two weeks 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, Dec. 4

8:30 a.m. EST: November’s Employment Situation Report (Risk: Neutral, Market Reaction: Very Significant): Continued second derivative improvements in the labor market should help slow the decline in payrolls after last month’s -190K drop.  The current Bloomberg consensus forecast for November’s payrolls is a decline of -100K, with the unemployment rate unchanged at 10.2%.  It will be important to monitor this week’s ADP, ISM employment index, and non-ISM employment index for unexpected swings that could impact the consensus forecast.

10:00 a.m. EST:  Charles Plosser, the Philadelphia Federal Reserve Bank President, will give opening remarks at conference on Policy Lessons from the Economic and Financial Crisis in Philadelphia.

10:00 a.m. EST: September’s Factory Orders (Risk: Neutral, Market Reaction: Moderate): A weak advanced durable goods release could place some downward pressure on factory orders. The current Bloomberg consensus forecast is for a modest increment of 0.2%, compared to a rise of 0.9% in September.

1:15 p.m. EST:  James Bullard, the St. Louis Federal Reserve Bank President, will speak at the Philly Fed’s conference.

Enjoy the weekend!

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This Morning’s Macro Recap: Income & Consumption, ECI, Chicago PMI, & Consumer Sentiment

October 30th, 2009 Michael McDonough Comments off

Personal Income showed no change for September after a revised increment +0.1% in August, this was inline with the consensus forecast.  Personal Consumption Expenditures (PCE) declined -0.5% in September, versus a revised increment of +1.4% in August.  The decline in consumption is the continued aftereffects caused by the expiration of the US government’s ‘Cash for Clunkers’ program’.  The program significantly bolstered sales during the months it was active, by at least partially,  leading some consumers–who would have been purchasing over the current months–to buy earlier in order to take advantage of the discount.  Additionally, relatively benign income growth over the past several months is unlikely to help catalyze any significant jump in consumer spending.   This data is indicative that the strong bounce in 3Q09’s personal consumption component of GDP will likely not be repeated in 4Q09.  The good news is that the inflation component of the report remains at relatively subdued levels.

October’s Chicago Purchasing Managers Index rose to 54.2 from 46.1 in September easily beating expectations.  The new orders index jumped to 61.4 in October from 46.3 in September, while the production index climbed to 63.9 in from 47.2. The employment index reported a modest decline to 38.3 October from 38.8 a month prior, while the prices paid component fell to 48.6 from 51.3.  A large jump in October’s new order index should bode well for the headline number next month.

October’s final University of Michigan Consumer Sentiment Index rose to 70.6 compared to a preliminary reading in October of 69.4; September’s final reading was 73.5.  This was essentially inline with expectations, but the fact that the final release declined from last month highlights the fact that consumers remain nervous, which will likely adversely impact the holiday shopping season.

In other news, the employment cost index rose 0.4% in 3Q09, which continues to indicate that wage pressure remains relatively benign.  This will not go unnoticed by the FOMC, who will likely keep their policy stance unchanged through most of 2010.

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

October 24th, 2009 Michael McDonough Comments off

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!

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September Chicago Purchasing Managers Index Drops

September 30th, 2009 Michael McDonough Comments off

The Chicago Purchasing Managers Index unexpectedly fell back below 50 to 46.1 in September.  This was well below the Bloomberg consensus forecast of 52.0, and August’s reading of 50.0.  I warned in my US week ahead that this indicator had the potential of surprising to the downside due to seasonal effects, but a drop of this magnitude was due to more then seasonal adjustments, and indicates an unwelcomed slowdown in mid-west economic activity.

Looking at the components, new orders declined to 46.3 from 52.5 in August, production fell to 47.2 in September from 52.9 , employment essentially held steady at 38.8 September from 38.7, and prices paid increased to 51.3 from 50.0.  This weak reading may place some downward pressure on other manufacturing indicators, including the ISM.

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US Economics Week Ahead: Markets Try to Find Traction in an Array of Data

September 25th, 2009 Michael McDonough 1 comment

There’s no doubt this week’s most important release will be Friday’s employment report, which is expected to show a decline in payrolls of -170K with an unemployment rate of 9.8%.  This week could prove critical as markets try to regain some traction after several negative surprises last week, including lower than anticipated existing home sales and durable goods orders.  However, looking at the docket this week (and possibly the months ahead) may hold slightly more downside risk than upside as the effects of the Cash for Clunkers program continues to fade, and the first time home buyer credit ticks closer to expiration come the end of November.  Other heavy hitters to watch this week include Tuesday’s consumer confidence report, Wednesday’s Chicago PMI release, and jobless claims, ISM, and personal income and outlays on Thursday.

Ending on a more positive note, the US is expected to return to positive GDP growth starting in 3Q09 on the back of improvements in the inventory cycle stemming from a slower rate of destocking.  However, the magnitude and longevity of this return to growth will be strongly dependent on consumer demand returning to the market.

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

Monday September 28th:

8:30AM: Chicago Fed National Activity Index for July (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 six months and is expected to improve again in August from its reading of -1.7 in July.

10:30AM: Dallas Fed, 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 “that factory activity continued to contract at a slower pace in August.”

Tuesday September 29th:

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 decline of -2.0% in store sales compared to an increase of +0.0% 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 -2.6% last week on a year over year basis.

9:00AM: S&P Case-Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): The Case Shiller HPI has shown some signs of life rising 1.4% in June with only Las Vegas and Detroit experiencing monthly declines.  But, on a year over year basis both the Case-Shiller 10 and 20 city composite indices are still down over 15%.  Nevertheless, the index will likely show a modest monthly improvement in July on the back of relatively strong housing activity.

9:50AM: Richard Fisher, Dallas Federal Reserve Bank President, gives a speech on the state of the economy.

10:00AM: Consumer Confidence (Risk: Negative, Market Reaction: Significant): Recent advances in other consumer confidence indicators, including Reuters/UMich Consumer Sentiment Index, should help add some upward momentum to the Conference Board’s September Consumer Confidence number.   A weak labor market is still a big concern for consumers, however, indications that the economy may be improving will likely not go unnoticed.  The current Bloomberg consensus forecast is for an increase to 57.0 from August’s number of 54.1.

10:00AM: 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, “[August’s] increase represents the eighth consecutive improvement in Global Investor Confidence, and places the risk appetite of institutional investors firmly in the range that is associated with accumulation of risk exposures,” They went on to say. “At the same time, the rate of increase in the Index has moderated relative to some months ago, suggesting that institutions are being somewhat selective in their allocations.”

3:00PM: 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.

7:00PM: Charles Plosser, Philadelphia Federal Reserve Bank President, is speaking on Fed’s role in the economy at the Lehigh Valley Economic Outlook

Wednesday September 30th:

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 an increment of 12.8% on higher refinancing activity stemming from mortgages rates slipping below 5%.  The refinance index rose 17.4%, while the purchase index rising 5.6%.Refinances made up 63.8% of all applications last week.

8:15AM: ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP Employment report is considered a good window into Friday’s critical payroll number.  Last month, however, the ADP reported indicated job losses of -298K, while payrolls declined by only -216K.

8:30AM: GDP (Risk: Neutral, Market Reaction: Moderate): According to the Bloomberg consensus survey, the BEA’s final estimate of 2Q09 GDP is likely to come in at -1.2%, compared to the preliminary estimate of -1.0%.  The culprits behind the anticipated slippage are faster inventory liquidation and weaker net exports. GDP is widely expected to turn positive in 3Q09.

9:45AM: Chicago PMI (Risk: Negative, Market Reaction: Moderate): This Chicago PMI measures business activity in the mid-West, and is released one day prior to the national ISM index.  Adverse effects from strong seasonal adjustment factors could cause this index to surprise on the downside.  The current Bloomberg consensus forecast is for an increase to 52.0 in September versus 50.0 in August.  It will be important to pay close attention to any significant changes to the new orders, employment, and prices paid indices. The new orders index broke above 50 in August for the first time in 11 months.

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 decline of -4.7mn barrels a week prior.

Thursday October 1st:

Motor Vehicle Sales (Risk: Negative, Market Reaction: Moderate): Auto sales will likely face a sharp pullback in September, no longer benefitting from the US government’s Cash for Clunkers program.  The current Bloomberg consensus is forecasting 8.0mn domestic sales for September, versus a 10.1mn annual pace in August.  Despite the precipitous drop, the y/y decline should be less now than it was prior to the Cash for Clunkers program, which is somewhat positive.

Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): This survey conducted by Monster Worldwide Inc. measures online job demand.

7:30AM: Challenger Job-Cut Report (Risk: Neutral, Market Reaction: Moderate): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs.  Meaning layoffs could be announced in September, but not take place until October, or may even take place slowly over an extended period of time.

8:30AM: Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant): The temporaneous effects of the Cash for Clunkers program have likely lead to a significant increment in consumer spending for August, with the Bloomberg consensus forecast anticipating a 1.1% monthly increase, higher energy prices may have also had a marginal impact.  Personal income will likely turn slightly positive for the month on the back of higher average wages; the current Bloomberg consensus forecast is for a monthly increment of 0.1% versus no change last month.  The core PCE is expected to rise 0.1%.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 21K to 530K. Initial claims should continue to 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 537K. The anticipated increment for claims may still be due to seasonal adjustment effects stemming from the later than usual Labor Day Holiday.

10:00AM: ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): In August the ISM rose for the 8th consecutive month finishing August at 52.9, this was the index’s first reading above the breakeven point of 50 since January 2008.  Looking to September, the current Bloomberg consensus forecast is for a reading of 53.5, which I personally believe may be slightly optimistic.  Nevertheless, the new orders index did jump last month to 64.9 from 55.3.  With that in mind it will be very important to pay close attention to September’s new orders and employment index, which could help set the tone for the overall report.

10:00AM: Construction Spending (Risk: Negative, Market Reaction: Moderate): According to the Bloomberg consensus survey construction spending is expected to fall -0.1% in August versus a decline of -0.2% in July.  Non-residential construction should continue placing the strongest downward pressure on the overall index, while residential construction spending also has the potential to move into negative territory after gaining 2.3% in July and 0.4% in June on a strengthening housing market.

10:00AM: Pending Home Sales (Risk: Neutral, Market Reaction: Moderate): Pending home sales rose 3.2% in June, realizing its sixth consecutive monthly gain.  However, pending home sales could start facing some pressure over the coming months as the first time home buyer tax credit is presently set to expire on November 30th.

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 rose again last week to US$2.141trn from US$2.125trn 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.

5:30PM: Sandra Pianalto, Cleveland Federal Reserve Bank President, is speaking at a Market News international seminar in NY.

Friday October 2nd:

8:30AM: Employment Situation Report (Risk: Neutral, Market Reaction: Very Significant): The current Bloomberg consensus forecast is for a decline in payrolls of -170K for September, compared to a decline of -216K in August.  However, it is important to keep in mind that a later than usual Labor Day could lead to some discrepancies in this month’s data.  Nevertheless, we should see an improvement from last month’s declines.  According to the Bloomberg consensus forecast the unemployment rate is expected to rise to 9.8% from 9.7%.

10:00AM: Factory Orders (Risk: Negative, Market Reaction: Moderate): The current Bloomberg consensus forecast is for an increment in factory orders of 1.0% in August, versus +1.3% in July.  However, unexpected weakness in last week’s durable goods release on Friday may cause some revisions to this number.

Enjoy the weekend!

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US Week Ahead: The Start of September…

August 29th, 2009 Michael McDonough Comments off

This week brings the onset of a notoriously bad month for returns, and given the week’s vast array of critical data, the ball is sure to start rolling in one direction or another.  First let me apologize if this week’s calendar seems somewhat abridged, as I am on vacation, and am writing it amid the sounds of seagulls and breaking waves.  This week’s key releases are the ISM manufacturing report, which has the chance to move above the breakeven point of 50 for the first time in roughly 20 months, and August’s employment report, which is likely to show continued deterioration.  Other notable reports include motor vehicle sales  on Tuesday, which will help us better comprehend the full magnitude of the government’s ‘Cash for Clunkers’ program, the ISM non-manufacturing report, and the release of the FOMC minutes, which will help investor’s gain a finer understanding of the Fed’s bias.  It is a busy week, so I recommend paying close attention.

Monday August 31st:

9:45AM: Chicago PMI (Risk: Neutral, Market Reaction: Moderate): This Chicago PMI measures business activity in the mid-West, and is released one day prior to the national ISM index.  In July most of the index’ components experienced gains, supporting a recovery in the US.  The current Bloomberg consensus forecast for August’s release is 48.0, compared to a previous reading of 43.4.  It will be important to pay close attention to any significant changes to the new orders, employment, and prices paid indices, all of which are currently below the breakeven of 50.  Last month the PMI stated, “If this were an average recession, it would end four months after the low point in the Barometer, suggesting an end of the recession in August 2009. A more conservative rule would draw an analogy to the 1981-82 recession, since this is not working out to be an average recession. Using that rule, the end of this recession would be projected to be 9 months after the lowest value of the Chicago Business Barometer. With March as our best current estimate of that minimum, the recession is projected to end in December 2009.”

3:00PM: 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.

Tuesday September 1st:

Motor Vehicle Sales (Risk: Upside, Market Reaction: Moderate): Motor vehicle sales will likely be up significantly on the back of the government’s ‘Cash for Clunker’ program.  The current Bloomberg consensus forecast is for sales is10.5mn, compared to the previous month’s sales of 8.3mn.

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 a decline of -0.9% a week prior.

10:00AM: ISM Manufacturing Index (Risk: Upside, Market Reaction: Significant): The ISM has experienced seven straight months of gains, and given this trend and improvement in other manufacturing indicators has the potential to move above the breakeven point of 50 this month.  This belief is strengthened by strong performance of the ISM’s new order index last month, which came in at 55.3. The current Bloombeg consensus forecast is for a reading of 50.5, compared to July’s reading of 48.9.

10:00AM: Construction Spending (Risk: Neutral, Market Reaction: Moderate): Increased activity in the residential and government sectors will likely be offset by diminishing spending on the commercial structures, leading the no significant changes in construction spending.  The current Bloomberg consensus is for a 0.0% change from last month, compared to an increment of 0.3% a month prior.

10:00AM: Pending Home Sales (Risk: Upside, Market Reaction: Moderate): Large increments in new mortgage applications and general improvements in the housing sector will likely sustain upward momentum in pending home sales.  Pending home sales were up 3.6% a month prior.  Pending home sales tends to be a reasonable forward looking indicator to final home sales, however, not all pending sales become final.

Wednesday September 2nd:

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 increased for the fourth consecutive week with a gain of 7.5%; while the refinance index rose 12.7% and the purchase index rose 1.0% on the back of relatively low mortgage rates and declining home prices.

7:30AM: Challenger Job Report (Risk: Neutral, Market Reaction: Marginal): This index measures the number of announced corporate mass layoffs.  But, this data does not take into account the timing of the actual layoffs.

8:15AM: ADP Employment Report (Risk: Neutral, Market Reaction: Significant): The ADP Employment report is considered a reasonable window into Friday’s critical payroll number.  Last month, however, the ADP reported indicated job losses of -371K, while payrolls declined by only -247K.

8:30AM: Productivity & Costs (Risk: Neutral, Market Reaction: Marginal): This will be the final release of 2Q productivity and labor costs.  It is unlikely there will be significant changes from the preliminary numbers, which showed a significant 6.4% increase in productivity and a -5.8% decline for unit labor costs.  In fact the current Bloomberg consensus forecast calls for no changes in either indicator.

10:00AM: Factory Orders (Risk: Upside, Market Reaction: Marginal): Increased durable goods orders largely on the back of the US government’s ‘Cash for Clunkers’ program will likely supply positive momentum for factory orders.  The current Bloomberg consensus forecast is for an increment of 2.3%, compared to 0.4% a month prior.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector.  Last week this report showed an increase in inventories of 0.2mn barrels after declining -8.4mn a week prior.

2:00PM: FOMC Minutes (Risk: Neutral, Market Reaction: Marginal): Given the three week lag between the FOMC meeting and the release of the minutes this should have only a marginal effect on trading. But, the minutes could elaborate the rationale behind the FOMC’s decision, and give some clues to future decisions, in which case the market could move on the release.

Thursday September 3rd:

Chain Store Sales (Risk: Downside, Market Reaction: Moderate): Chain store sales probably came under pressure again last month, as consumers reduced spending on the back of weakness in the labor market.  In fact, a recent survey by the National Retail Federation found that families this year will be spending on average US$549 versus US$594 last year on back to school goods.  This along with other negative factors should adversely impact this summer’s retail sales.

Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): This survey conducted by Monster Worldwide Inc. measures online job demand.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 10K to 570K. Claims should marginally improve 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 562K.  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: ISM Non-Manufacturing Index (Risk: Upside, Market Reaction: Moderate): August’s non-manufacturing ISM should show continued improvement, but remain below the breakeven mark of 50.  In July the new orders component came in below 50 at 48.1, and is not expected to break above 50 this month either.

10:00AM: 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 to US$2.049trn from US$2.037trn 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 helping to control interest rates.

Friday September 4th:

8:30AM: Employment Report (Risk: Downside, Market Reaction: Very Significant): Elevated levels of initial jobless claims will likely place continued pressure on payrolls.  The current Bloomberg consensus forecast is for a decline in payrolls of -200K, and an unemployment rate of 9.6%.  I believe the consensus forecast for payrolls may be somewhat optimistic, and will be looking for additional hits in this week’s ADP and ISM employment indices.

Enjoy the weekend!

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Economics Week Ahead: GDP & Earnings Steal the Show

July 25th, 2009 Michael McDonough Comments off

We have a rather tumultuous week in terms of economic data, which will focus on the US housing sector, consumer confidence, durable goods, and US GDP. The week kicks off Monday morning with the US Census Bureau reporting June’s new home sales. Recent housing data has been indicative of a bottom for the sector, so it will be important to see whether new home sales data confirms this trend. Mid-week the market will focus on June’s durable goods, with investors looking for any signs of a potential turnaround in industrial production, which experienced a 13.6%yoy decline in June. The week’s main economic event will take place on Friday with the Commerce Department’s release of the advanced 2Q09 GDP estimates. They will also be releasing changes to the benchmark methodology, which could cause some revisions to past data. But again, this week’s earnings calendar will overshadow most of the week’s economic news. Big names reporting this week include Chevron, Walt Disney, Travelers, Verizon, Viacom, Exxon Mobile, Amgen, Norfolk Southern, Genco Shipping, DryShips, Visa, and International Paper. There will also be a record US$115bn long-dated Treasury auction occurring this week, which coupled with better than anticipated earnings has put some downward pressure on Treasury prices.

Monday July 27th:

10:00AM: New Home Sales (Risk: Upward, Market Reaction: Significant): Attractive mortgage rates combined with tax incentives and relatively low home prices should place some upward pressure on this release, but sustained weakness in the labor market will prevent this index from realizing its full potential. The current Bloomberg consensus for new home sales is 350K, compared to last month’s reading of 342K.

Tuesday July 28th:

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 0.5% gain in store sales over the previous week.

10:00AM: S&P Case Shiller Home Price Index (Risk: Neutral, Market Moderate: xx): The S&P Case Shiller HPI is reported monthly, but on a two month lag. Last month’s report showed the rate at which home prices were declining began diminish, with some major cities even experiencing modest gains. I anticipate this month’s release will reaffirm that trend. But, we would still need to see significant improvements in those regions, which were the hardest hit by the drop in prices, before we can see a strong overall recovery.

10:00AM: Consumer Confidence (Risk: Downside, Market Reaction: Significant): Weakness in the labor market could adversely impact consumer confidence, overshadowing the recent spike in equity prices. Supporting this is the fact that last week’s Reuters/UofM Consumer Sentiment Index fell to 66 in July from 70.8 a month prior. It will also be important to monitor changes in the expectations index, which has remained elevated, and could help buffer any negative surprises in the current conditions index. The current Bloomberg consensus forecast for July’s consumer confidence reading is 50.0, versus an outcome last month of 49.3.

10:00AM: Janet Yellen, San Francisco Federal Reserve Bank President, speaks on the economic outlook to the Idaho/Oregon Bankers Association.

Wednesday July 29th:

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 purchase index rose 1.3%; while the refinance index increased by 4.0% on rising, but still relatively low mortgage rates.

8:30AM: Durable Goods Orders (Risk: Downside, Market Reaction: Significant): This index could face some negative pressure this month as June’s ISM, Philly Fed, NY Fed indices all indicated contractions in new orders. The current Bloomberg consensus forecast is a month over month change of -0.5%, compared to last month’s reading of 1.8%. In May this index was down roughly 26%y/y.

8:30AM: William Dudley, New York Federal Reserve Bank President speaks to the Association for a Better New York on factors driving U.S. growth and inflation.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector.

2:00PM: Fed Beige Book (Risk: Neutral, Market Reaction: Marginal): This report, which is released two weeks before FOMC meetings, outlines economic conditions across the Fed’s 12 districts. Indications of a return to growth for any of the fed’s districts could produce some positive headlines.

Thursday July 30th:

8:30AM: Jobless Claims (Risk: Downside, Market Reaction: Significant): As expected, initial claims experienced a significant uptick last week to 554K from 522K, after two solid weeks of declines. This increase will likely be continued this week as erroneous seasonal adjustments from early auto plant closures continue to correct themselves. Nevertheless, barring recent data, I due anticipate we will see a modest recovery in claims data over the coming months.

10:00AM: 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 decreased to US$2.024trn from US$2.057trn. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt and mortgage-backed securities to help bring down interest rates.

Friday July 31st:

8:30AM: GDP (Risk: Neutral, Market Reaction: Significant): This will be the key release for the week as investors continue trying to gauge the longevity of the current recession. The current Bloomberg consensus forecast for Real GDP (Q/Q) SAAR is -0.7%, compared to a prior reading of -5.5%. Additionally, the Commerce Department will be releasing their benchmark revisions, which could cause some revisions to past data. In the eyes of the market, this release will likely support the view that there is light at the end of the tunnel. But, make no mistake about it, we are still in the midst of a prolonged recession, which though easing likely won’t abate over the next several months. This data will also reaffirm the Central Bank’s current accommodative policy stance.

8:30AM: Employment Cost Index (Risk: Downside, Market Reaction: Marginal): The current Bloomberg consensus forecast for the ECI is a quarter over quarter change of 0.3%, compared to a first quarter reading of 0.3%. Interestingly, last quarter’s growth rate was the lowest in the 27 year history of this index. Weakness in the labor market combined with cost cutting, affecting benefits, could place some additional downward pressure on this index.

9:45AM: Chicago PMI (Risk: Neutral, Market Reaction: Moderate): The current Bloomberg consensus forecast for the Chicago PMI Business Barometer Index is 44, versus June’s reading of 39.9. Any reading below 50 indicates a contraction. This index includes both manufacturing and non-manufacturing companies. It will be important to monitor the new orders, employment, and prices paid indices, all of which are currently well below the breakeven of 50.

3:00PM: Farm Prices (Risk: Neutral, Market Reaction: Marginal): Given the relationship between farm prices and food prices, this index could have implications on future headline CPI and PPI.

Enjoy the weekend!

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