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Posts Tagged ‘consumer credit’

Consumer Credit Takes A Nose Dive

January 8th, 2010 Michael McDonough Comments off

Consumer Credit outstanding dived by a record -$17.5bn in November, compared to a revised -$4.2bn decrease in October.  The Bloomberg consensus forecast was anticipating a more moderate -$5.0bn decline. Individual estimates ranged from  -$10.0 bn to a high of -$2.0bn.  Revolving credit credit card balances) fell by -$13.7bn in November compared to a decline of -$7.4bn a month prior.  Nonrevolving credit (auto credit, vacation loans, education loans, etc.) dropped -$3.8bn during the month versus a rise of$3.2bn in October.

This data continues to imply that banks are unwilling to lend and consumers remain hesitant about taking on any new debt.  The bottom line here is don’t look towards at credit cards any times soon as a means to bolster consumer spending.

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US Economics Week Ahead: 2010 Starts with a Bang

December 31st, 2009 Michael McDonough Comments off

It is a good thing investors will have the entire weekend to recover from their New Year’s celebrations, because 2010 is starting with a bang, at least in terms of economic data.  Undoubtedly, the week’s most critical release will be Friday’s employment report, where excitement is building that payrolls could show their first monthly advance since gaining 120K jobs in December 2007. What a difference a year makes, considering it was announced last year that payrolls fell -524K December.  Leading up to this release data-centric investors will analyzing both the ISM manufacturing and non-manufacturing’s employment indices along with the ADP employment report for clues toward Friday’s release.

Other significant indicators this week include manufacturing ISM on Monday, pending home sales on Tuesday, non-manufacturing ISM and FOMC minute on Wednesday, and jobless claims and chain store sales on Thursday.  The manufacturing ISM should remain above 50 for the fifth consecutive month; however, weakness in some of the Fed’s regional manufacturing survey could place some negative pressure on the index leading to only a marginal gain from November’s release.  The FOMC minutes should prove to be a non-market moving event simply providing further details behind the Fed’s eventual exit strategy and the termination of its unprecedented accommodative policies.  Pending home sales should help provide some insight behind the health of home sales after the would-be expiration of the first time home buyer tax credit on November 30th.  Finally, chain store sales on Thursday will provide one of the first detailed looks at the holiday shopping season.

Fed speakers will be relatively active next week with Chairman Bernanke, Vice Chairman Kohn, and Atlanta Fed President Lockhart opening the week up on Sunday participating in a panel discussion for the American Economic Association in Atlanta.  On the earnings front, Bed Bath & Beyond (BBBY), Constellation Brands (STZ), Family Dollar Stores (FDO), and Monsanto (MON) are all expected to report this week.  Also, look for headlines from the 2010 Consumer Electronics Show that starts next week and could attract over 100K visitors.

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

Monday, Jan. 4

10:00 a.m. EST: December’s ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): The Manufacturing ISM Index should remain above 50 for the fifth consecutive month, but experience only a marginal gain from November’s reading of 53.6.  Weakness in some of the Fed’s regional surveys could place downward pressure on this month’s release; however, some of this pressure should be alleviated by the fact that in November the ISM New Orders index came in at a relatively robust 60.3.  It will be important to continue monitoring the ISM’s new orders, employment, and prices paid index for implications toward the future and other sectors of the economy.  The current Bloomberg consensus forecast is for an ISM reading in December of 54.8, compared to 53.6 in November.

10:00 a.m. EST: November’s Construction Spending (Risk: Neutral, Market Reaction: Moderate): Construction spending will likely remain weak in November, and downward revisions to past data are likely to continue.  Construction spending was unchanged in October, but after revisions declined by -1.6% in September.  The current Bloomberg consensus forecast is for a decline in construction spending of -0.5%.

10:15 a.m. EST: Dennis Lockhart, the Atlanta Federal Reserve Bank President, will give a speech on government crisis response to the American Economic Association.

Tuesday, Jan. 5

December’s Motor Vehicle Sales (Risk: Neutral, Market Reaction: Moderate): Attractive dealer year-end incentives during December will likely help boost motor vehicle sales during the month.  The current Bloomberg consensus forecast for domestic vehicle sales is an annual pace of 8.4 million units, compared to 8.2 million a month prior.

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 an increment of +0.6% 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.

10:00 a.m. EST: November’s Factory Orders (Risk: Neutral, Market Reaction: Marginal): After rising 0.6% in October, factory orders should continue to rise in November on the back of relatively strong durable goods orders and refinery orders stemming from higher energy prices.  The current Bloomberg consensus forecast is for a rise in factory orders of 0.4%.

10:00 a.m. EST: November’s Pending Home Sales (Risk: Downside, Market Reaction: Significant): This release should help quantify the impact of what would have been the expiration of the first time homebuyer tax credit on November 30th.  It is expected that a wave of buyers rushed to close their purchases before the end of the month to qualify for the first time home buyer tax credit.  Mortgage applications have recently been on the decline to supporting this theory.  It is expected that an extension/expansion of the program will eventually bring a new group of home purchasers into the market.

Wednesday, Jan. 6

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): The MBA was closed last week so this week’s release will include two weeks of data. 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 fell 10.7% two weeks ago 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.

7:30 a.m. EST: December’s 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.  I anticipate this report will show continued improvements as companies have mostly completed large scale layoffs.

8:15 a.m. EST: December’s 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.

10:00 a.m. EST: December’s ISM Non-Manufacturing (Risk: Neutral, Market Reaction: Significant): After unexpectedly falling below 50 in November, investors will have the opportunity to decide whether this is the beginning of a new trend or a one off event.  Investors will also be paying close attention to the non-manufacturing ISM’s employment index, which could have some sway over the whisper number ahead of Friday’s employment report.  The current Bloomberg consensus forecast is for a reading of 50.4 compared to 48.7 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 a decline of -1.5 million barrels versus a drop of -4.9 million barrels a week prior.

2:00 p.m. EST: FOMC Minutes (Risk: Neutral, Market Reaction: Significant): The FOMC minutes should provide additional details behind the Fed’s eventual exit strategy and the termination of its unprecedented monetary easing.  However, I think it is still too early in the year to anticipate anything tremendously market moving from this report.

Thursday, Jan. 7

Chain Store Sales (Risk: Neutral, Market Reaction: Moderate): The market will be looking closely at this report as it is the first detailed report covering the holiday shopping season.  Early reports have indicated that the holiday shopping season may have been more robust than some had anticipated, but considering last year’s base this may not be as positive as it sounds.  Nevertheless, higher is better; I anticipate the strongest results will come from discount retailers as consumers grow increasingly budget conscious.

6:00 a.m. EST: Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): Given the added significance of this week’s employment report this typically overlooked employment index could garner some extra attention. This survey conducted by Monster Worldwide Inc. measures online job demand.  According to the company, “The trend in online job availability has been largely flat for most of the year and remained so in November,” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide. “While job losses have continued to ease, businesses remain cautious about adding to their payrolls in light of sustained economic uncertainty.”

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 22K last week to 432K, after falling 28K a week prior.  It is important to note that the Christmas holiday, and the seasonal adjustment around it, could be skewing last week’s data.  The four week moving average improved to 460,250 from 465,250.  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.

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.

1:00 p.m. EST: Tom Hoenig, the Kansas City Federal Reserve Bank President, will give a speech on the economic outlook.

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 shrank marginally last week to US$2.219trn from US$2.221trn, due to marginal reduction in the Fed’s 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. 8

8:30 a.m. EST: December’s Employment Situation (Risk: Neutral, Market Reaction: Very Significant): The current Bloomberg consensus is for a change in payrolls of 0, versus a decline of -11K in November.  Individual forecasts range from -50K to +40K.  A steady reduction in the number of initial unemployment claims bodes well for improving payroll data, but I think we could see an eventual reversal of seasonal hires as the holiday shopping season comes to a close in the months ahead.  I will be paying close attention to the index’s temporary employment index, which recently has been improving, and is a good forward looking indicator toward payrolls.  I continue to believe, despite a potentially positive reading in December, the employment situation will get worse before it stabilizes and begins to improve, albeit gradually, in 2Q10.  The current Bloomberg consensus forecast for the unemployment rate is 10.0%, unchanged from November.

10:00 a.m. EST: Wholesale Trade (Risk: Neutral, Market Reaction: Marginal): This indicator measure the level of inventories and sales by US wholesalers.  It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales.  It is important to note that this data is on a two month lag.

1:35 p.m. EST: Jeffrey Lacker, the Richmond Federal Reserve Bank President, will speak at the Maryland Bankers Association “First Friday” Economic Outlook Forum.

3:00 p.m. EST: November’s Consumer Credit (Risk: Neutral, Market Reaction: Moderate): I anticipate that little has changed in this sector, and we should continue to see a decline in consumer credit in the face of consumers less willing to borrow and banks less willing to lend.  November would be the tenth consecutive month consumer credit has declined.  In October consumer credit declined by -$3.5 billion, after declining by a revised -$8.9 billion in September.  The current Bloomberg consensus forecast is for a decline of consumer credit outstanding of -$5.0 billion for November.

Enjoy the weekend!

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US Economics Week Ahead: Black or Red Friday?

December 5th, 2009 Michael McDonough Comments off

This week is relatively quiet on the economic front, following last week’s tsunami of data culminating in a much better than anticipated employment release.  This week’s theme is the consumers, who have the potential to stymie last week’s positive sentiment depending on sales strength during the Black Friday shopping weekend.  The week’s primary release will be retail sales on Friday; however, the Tuesday’s typically overlooked Redbook and ICSC-Goldman Store Sales releases could provide some important clues toward Friday’s critical sales report.  Early indications have been mixed, with discount stores seeming to be more robust relative to their department and specialty store counterparts—another indication of a more value oriented consumer.

After Friday’s employment report investors will be paying close attention to Thursday’s jobless claims data hoping for additional evidence that Friday’s much better than anticipated employment report was not a one-off event.  Personally, I still believe the employment situation will get worse before it gets better, but is unquestionably heading in the right direction.  Other important indicators this week include Thursday’s international trade data and Treasury budget; and Friday’s preliminary consumer sentiment index and business inventories report.

We should also hear earnings this week from Costco Wholesale Corp., H&R Block Inc., Kroger, and Smithfield Foods.  Additionally, during a speech on the economy on Tuesday President Obama could discuss new proposals for job creation derived from his recent jobs summit.

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

Monday, Dec. 7

12:00 p.m. EST: Ben Bernanke, the Federal Reserve Chairman, speaks to the Economics Club of Washington D.C.

3:00 p.m. EST: October’s Consumer Credit (Risk: Neutral, Market Reaction: Moderate): Total outstanding consumer credit will likely decline for the 8th consecutive month—a series record—after declining by -$14.8 billion in September.  The decline should come entirely from a decline in revolving credit—credit cards—while non-revolving credit should show a modest increment due to auto sales.  The current Bloomberg consensus forecast is for a total decline in credit of -$9.3 billion for October.  This data would be more significant if retail sales and personal sales data were not already known for the month.

5:45 p.m. EST: William Dudley, the NY Fed President, is attending Columbia University’s World Leaders Forum

Tuesday, Dec. 8

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 declined -0.1% compared to no change 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 3.8% last week on a year over year basis.

10:00 a.m. EST: IBD/TIPP Economic Optimism Index (Risk: Neutral, Market Reaction: Marginal): IBD’s economic optimism index is not closely watched by markets, but it could provide us with some direction for Friday’s preliminary consumer sentiment index.

Wednesday, Dec. 9

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 2.1% last week after dropping 5.5% a week prior.  Refinance applications climbed 1.7%, while purchase applications rose 4.1% on the back of attractive interest rates.  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.

10:00 a.m. EST: Wholesale Trade (Risk: Neutral, Market Reaction: Marginal): This indicator measure the level of inventories and sales by US wholesalers.  It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales.  It is important to note that this data is on a two month lag.

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 2.1 million barrels versus a jump of 1.0 million barrels a week prior.

Thursday, Dec. 10

8:30 a.m. EST: October’s International Trade Data (Risk: Neutral, Market Reaction: Moderate): The US trade deficit likely grew further in October on the back of an increment in imports, offset by a smaller increment in exports.  It is not unusual for the trade gap to widen during a recovery period.  However, the current Bloomberg consensus forecast is for a little changed trade deficit in October of $36.4 billion, compared to $36.5 billion in September.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 5K last week to 457K, after falling 35K a week prior. This is the lowest level reading since September 2008. But, a portion of this improvement could be attributable to strong seasonal adjustment factors due to annual deviations in the date of the Thanksgiving holiday, but there is no doubt the news is getting better.  Improving initial claims are indicative of fewer job losses in the monthly employment report; however, the job situation will get worse before it gets better.  The current Bloomberg consensus forecast is expecting claims to come in at 460K, an increase of 3K from last week.

9:00 a.m. EST: RBC Cash Index (Risk: Neutral, Market Reaction: Moderate): The Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index is a monthly measure of consumer attitudes toward investing, the economic outlook, and personal finances.  This index does hold some importance in so much that it tends to demonstrate a pretty significant correlation with the consumer sentiment index being released next week.

10:00 a.m. EST: Third Quarter Quarterly Services Survey (Risk: Neutral, Market Reaction: Marginal): The U.S. Consensus Bureau’s Quarterly Services Survey estimates total operating revenue with a breakdown in revenue by client type (i.e. government, business, consumers, and individuals).  The survey is specific to the following baskets of sectors: 1) Information, 2) Professional, Scientific, and Technical Services, 3) Administrative and Support and Waste Management and Remediation Services, 4) Hospitals and Nursing and Residential Care Facilities.  The 2Q09 survey showed revenues decreased for all sectors excluding hospital and nursing and residential care facilities.

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.

12:45 p.m. EST: Elizabeth Duke, a Federal Reserve Board Governor, will speak at the Chicago Fed’s mortgage foreclosure policy conference in Chicago.

2:00 p.m. EST: November’s Treasury Budget (Risk: Neutral, Market Reaction: Moderate): The Treasury Budget in November will likely show another record deficit.  In October—the first month of the government’s fiscal year—the deficit reached -$176.4 billion compared to -$155.5 billion a year prior.  The current Bloomberg consensus forecast for November is a deficit of -$135.0 billion, to help put this into perspective the average deficit over the past 10 years in November is -$68.4 billion.

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$2.183trn from US$2.189trn.    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. 11

8:30 a.m. EST: November’s Retail Sales (Risk: Neutral, Market Reaction: Significant): Several factors should help bolster retail sales in November including higher auto sales, new video game releases—Modern Warfare 2—, and higher gasoline prices.  However, early indicators toward consumer sales during the popular Black Friday weekend have been mixed.  It would appear discount stores sales continue to outperform their department and specialty store counterparts.  Look toward Tuesday’s Redbook and ICSC-Goldman Store Sales for additional clues toward this release.  The current Bloomberg consensus forecast is for an increase in headline retail sales of 0.9% versus 1.4% a month prior, while retail sales ex-autos is expected to rise 0.5%, compared to 0.2% in October.  This would be te fourth consecutive month of growth for retail sales ex-autos.

8:30 a.m. EST: November’s Import and Export Prices (Risk: Neutral, Market Reaction: Marginal): The rising cost of oil in November will undoubtedly place upward pressure on the import price index.  Lower natural gas prices during the month will help to offset some increments in other imported commodities including gold and copper, but the ex-petroleum price index should still remain positive. 

9:55 a.m. EST: Preliminary December Consumer Sentiment (Risk: Positive, Market Reaction: Moderate): December’s preliminary consumer sentiment should show at least a modest gain from November’s final reading of 67.4.  For hints toward the direction of this indicator look at Tuesday’s IBD/TIPP Economic Optimism Index and ABC News consumer comfort index released Tuesday evening.  The current Bloomberg consensus is for a reading of 68.2 compared to 67.4 in November.

10:00 a.m. EST: October’s Business Inventories (Risk: Positive, Market Reaction: Moderate): The current Bloomberg consensus forecast is for a decline in inventories of -0.2% compared to a drop of -0.4% a month prior.  Despite the consensus forecast, factory inventories, which rose +0.4% in October, realizing its first gain in 14 months, providing some upward momentum for the release.  Concurrently wholesale inventories are anticipated to fall -0.4%—released on Wednesday—, while retail trade is expected to decline by -0.1%

Enjoy the weekend!

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US Economics Week Ahead: Is October the new September?

October 3rd, 2009 Michael McDonough Comments off

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

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

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

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

Monday October 5th:

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

Tuesday October 6th:

7:45AM: ICSC-Goldman Store Sales (Risk: Negative, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a weekly increment of 0.1% in store sales compared to a decline of -2.0% a week prior.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were down -2.2% last week on a year over year basis.

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

Wednesday October 7th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week’s data showed a decline of 2.8% despite lower mortgage rates.  The refinance index fell 0.8%, while the purchase index dropped 6.2%.Refinances made up 65.3% of all applications last week.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a rise of 2.8mn barrels versus a rise of 2.8mn barrels a week prior.

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

Thursday October 8th:

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

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose last week by 17K to 551K. Initial claims should demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 480K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.  The current Bloomberg consensus for this week’s initial claims release is 540K. But, initial claims could face some upward pressure during the month as an increased number of lay-offs were announced to take place.

10:00AM: RBC Cash Index (Risk: Neutral, Market Reaction: Marginal): The Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index is a monthly measure of consumer attitudes toward investing, the economic outlook, and personal finances.  This index does hold some importance in so much that it tends to demonstrate a pretty significant correlation with the consumer sentiment index being released next week.

10:00AM: Wholesale Trade (Risk: Neutral, Market Reaction: Moderate): This indicator measure the level of inventories and sales by US wholesalers.  It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales.  However, continued weakness in the labor market coupled with no indication of a rebound in consumer spending this index could face some negative pressure.  It is also important to note that this data is on a two month lag.

10:30AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet declined last week to US$2.123trn from US$2.141trn a week prior.  This was the first decline in eight weeks.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

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

Friday October 9th:

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

Enjoy the weekend!

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Consumer Credit Outstanding Down US$21.55bn

September 8th, 2009 Michael McDonough Comments off

US consumer credit fell US$21.55bn in July, or 10.4% on an annualized rate.  This is the largest monthly decline consumer credit has ever experienced.  This was also the index’s 6th consecutive month of declines.  The government’s ‘Cash for Clunker’s’ program did little to stem a a record US$15.44bn decline in non-revolving credit, while revolving credit, which includes credit cards fell US$6.11bn.  Tight credit conditions and the consumer’s apprehension toward borrowing continue to impact the level of consumer lending.  The bottom line is that a consumer led recovery remains highly improbable.

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US Economics Week Ahead: The Calm Before The Storm

September 4th, 2009 Michael McDonough 1 comment

With the shortened week comes a rather light economic calendar, with the most significant release likely being the Fed’s Beige Book on Wednesday, followed by consumer sentiment on Friday.  This week’s lull will come to an abrupt end next week with the release of the retails sales and Industrial production data, among others.  In addition to the Fed’s Beige Book this week brings with it a relatively full schedule of Fed talk, with three members speaking between Wednesday and Thursday on various topics.  Other notable releases include July’s international trade data and jobless claims on Thursday.  Initial claims will continue to come under the spotlight as last week’s employment report sent investors mixed messages with payrolls coming in better than forecasted, while the unemployment rate disappointed expectations.  The market will also hear earnings announcements from a handful of companies, including Campbell Soup Co. (CPB) and Men’s Warehouse (MW).  Here is the rest of this week’s calendar:

Monday September 7th:

Labor Day- No Releases

Tuesday September 8th:

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 decline of -0.5% in store sales compared to an increment of 0.6% 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 4.1% last week on a year over year basis. 

3:00PM: July Consumer Credit Outstanding (Risk: Neutral, Market Reaction: Marginal): The amount of consumer credit outstanding in July likely contracted, but albeit at a slower pace than the month prior due to upward momentum from auto sales stemming from the government’s ‘Cash for Clunkers’ program.  Given tight credit conditions and the consumer’s apprehension toward borrowing the index’s revolving credit component should remain suppressed after falling -US$5.4bn in June.   This index does not included mortgages or any loans backed by real estate.  The current Bloomberg consensus forecast is for an overall drop in credit of around –US$ 4.0bn, compared to June’s net drop of -US$10.3bn.

US Congress Returns from August Break: Upcoming topics that will likely create headlines include; healthcare reform, financial regulation reform, additional increments to the US debt limit, and the reconfirmation of Chairman Bernanke.

Wednesday September 9th:

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 declined for the first time in five weeks, falling 2.2%.  The refinance index declined 3.1%, while the purchase index fell 1.0%; this performance came despite falling mortgage rates and relatively low home prices.

8:55AM: 2Q09 Quarterly Services Survey (Risk: Neutral, Market Reaction: Moderate): The U.S. Consensus Bureau’s Quarterly Services Survey estimates total operating revenue with a breakdown in revenue by client type (i.e. government, business, consumers, and individuals).  The survey is specific to the following baskets of sectors: 1) Information, 2) Professional, Scientific, and Technical Services, 3) Administrative and Support and Waste Management and Remediation Services, 4) Hospitals and Nursing and Residential Care Facilities.  The 1Q09 survey showed revenues decreased for all sectors excluding hospital and nursing and residential care facilities.

2:00PM: Beige Book (Risk: Upside, Market Reaction: Significant): This report, which is released two weeks before FOMC meetings, outlines economic conditions across the Fed’s 12 districts. Recently the report, which has been negative for all of the year, may have reached an inflection point in July; continued signs of improvement would be a welcome sign to investors.  This report helps to provide valuable input into the US service sector, which makes-up roughly 55% of the US economy.

Fed Speak: Charles Evans, Chicago Fed President, is schedule to speak at the Council of Foreign Relations in NY on the “Great Inflation Debate”.

OPEC is scheduled to meet on Wednesday, but is expected to make no changes to its current output policy.

Thursday September 10th:

8:30AM: July International Trade Data (Risk: Neutral, Market Reaction: Moderate): Due to the offsetting effect of a marginal decline in petroleum imports, stemming from pricing effects, July’s overall trade deficit should only show a marginal increment.  The current Bloomberg consensus forecast for July’s deficit is US$28.0bn, versus June’s deficit of US$27.0bn

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 4K to 570K. Claims should demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  The current Bloomberg consensus for this week’s initial claims number is 565K.  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.

10:30AM: 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.

11:00AM: 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 a decline of -0.4mn barrels versus and increment of0.2mn barrels a week prior.

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$2.069trn from US$2.052trn 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.

Fed Speak: Fed Vice Chairman Donald Kohn is schedule to speak at the Brookings Institute in Washington D.C. on the Fed’s unorthodox policy response to the recent financial crisis.  Dennis Lockhart, President of the Atlanta, is also scheduled to speak on Thursday.

US Treasury Secretary Timothy Geithner is scheduled to testify in front of a Congressional oversight committee regarding the Troubled Asset Relief Program (TARP).

The Bank of Canada and the ECB are scheduled to make monetary policy announcements.

Friday September 11th:

8:30AM: August Import and Export Prices (Risk: Neutral, Market Reaction: Moderate): An increment in petroleum prices during the month will likely cause August’s import price index to rise, after falling -0.7% in July.  Presently, a substantial rise in any of the major pricing indicators could increase the amount of chatter over potential future inflationary pressures.  For a more detailed analysis on how inflationary pressures could impact monetary policy please see my piece on FiatEconomics.com titled, ‘When Will the FOMC Turn From Dove to Hawk? Don’t Hold Your Breath…’.

9:55AM: August Preliminary Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): Improvements in the housing market, fewer job losses, and relatively low gasoline prices will like place some positive momentum on September’s preliminary Reuters/University of Michigan Consumer Sentiment Index.  The current Bloomberg consensus forecast for the index is 67.0, compared to August’s final reading of 64.5.  As you may recall August’s preliminary release unexpectedly fell to 63.2 from 66.0 in July causing significant leading to significant concerns over the US consumer sector.  August’s final reading was the lowest since March 2009.  An increment in last week in the Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index should bode well for consumer sentiment as they tend the indicators tend to demonstrate a significant correlation.  The RBC Cash Index increased to 40.0 in September compared to a previous reading 37.5.

10:00AM: July Wholesale Trade (Risk: Neutral, Market Reaction: Moderate): This indicator measure the level of inventories and sales by US wholesalers.  It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales.  However, continued weakness in the labor market coupled with no indication of a rebound in consumer spending this index could face some negative pressure.  It is also important to note that this data is on a two month lag.

2:00PM: Treasury Budget (Risk: Neutral, Market Reaction: Moderate): The current Bloomberg consensus for July’s US government budget deficit is –US$140.0bn compared to –US$180.7 a month prior.  Large deficits have led to record levels of US treasuries auctions, which in some instances have placed downward pressure on rates and in a few cases the growing deficit has even sparked some mild concerns over the US’s risk free credit rating.

Enjoy the weekend!

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June Consumer Credit Falls More Than Expected

August 7th, 2009 Michael McDonough Comments off

Consumer credit fell -US$10.3bn in June, with May’s release being revised down to -US$5.4bn.  The street consensus was for a drop of -US$5.0bn.  This index does not included mortgages or any loans backed by real estate.  Looking at the index’s components, revolving credit (credit card balances) dropped -US$5.4bn in June compared to -US$4.9bn in May.  Non-revolving credit (auto credit ex-leases, vacation loans, student loans, etc…) diminished by -US$5.0bn in June vs -US$0.5bn a month prior.  This indicator continues to be influenced by weakness in the labor market and a reduction in the use of credit cards.  This decline coincides with a 4.7%y/y drop in wages and salaries in June.  June also saw a record in credit card defaults.

Consumer CreditSource: St. Louis Fed

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US Economic Week Ahead: The Calm after the Storm

July 3rd, 2009 Michael McDonough Comments off

This week’s economic calendar is relatively quiet, especially compared to the hustle and bustle of last week. Monday’s non-manufacturing ISM report starts the week off, followed by Wednesday’s consumer credit report, Thursday’s jobless claims data, and Friday’s US trade statistics and consumer sentiment. The impact of this week’s non-manufacturing ISM report could be somewhat subdued since its release comes after June’s employment report; negating the importance the report’s employment index. But, significant declines or advances in the report’s business activity index could help shift market sentiment. This week’s big headlines, however, will likely be driven by the start of the 2Q09 earnings seasons, with Alcoa set to announce earnings on Wednesday. There is also a G8 summit taking place this week in Italy, which could produce some headlines. Here is this week’s US economic calendar:

Monday July 6th:

10:00AM: ISM non-manufacturing Index (Risk: Neutral, Market Reaction: Moderate/Marginal): The non-manufacturing ISM index will likely experience its third consecutive monthly rise. The current Bloomberg consensus for the index is 46.7 compared to last month’s reading of 44.0. The market would take any positive surprises to this index as good news echoing better than anticipated data in the manufacturing sector pointing towards a less severe recession. It will also be important to pay attention to non-manuf. ISM’s new order index, which tends to be a forward looking indicator for the primary business activity index. Since June’s employment report has already been released the employment index is essentially a non-factor.

Tuesday July 7th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downside, Market Reaction: Marginal): This weekly index tracks same store sales at major US retailers, account for roughly 10% of total 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 1.6% increment in store sales over the previous week.

Wednesday July 8th:

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. A recent drop in refinancing activity caused this index to drop 18.9% on a weekly basis last week, while the level of mortgages to purchase new homes dropped by 4.5%.

3:00PM: Consumer Credit (Risk: Downside, Market Reaction: Marginal): Consumer credit has contracted quite severely over the past several months as saving rates rise and banks tighten consumer credit. The current Bloomberg consensus indicates a month over month change of –US$7.5bn compared to –US$15.7bn a month prior—the second biggest drop on record. Given recent deterioration in the employment situation and a drop in consumer confidence we could see this indicator disappoint.

Thursday July 9th:

Same Store Sales: (Risk: Downside, Market Reaction: Moderate): This monthly release breaks out same store sales data for individual retail chains. Like weekly the ICSC-Goldman Store Sales index, recent data supporting an increasing US savings rate and a worsening employment situation coupled with deep discounts at some stores, will likely place some downward pressure on same store sales.

8:00AM: Federal Reserve Governor Elizabeth Duke: Is speaking at the FDIC’s Interagency Minority Depository Institutions National Conference in Chicago. This could create some headlines.

8:30AM: Initial Claims (Risk: Neutral, Market Reaction: Significant): The current Bloomberg consensus forecast for initial claims is 610K versus last week’s number of 614K. It is likely that after Thursday’s disappointing employment data the market will become more sensitive to changes in claims, as it is an excellent forward looking indicator toward payroll data. I anticipate both initial and continuing claims data will improve as the month progresses.

Friday July 10th:

8:30AM: International Trade (Risk: Neutral, Market Reaction: Marginal/Moderate): The current Bloomberg consensus for the US trade balance is –US$28.8bn versus last month’s reading of –US$29.2bn. Recent increments in oil prices could add to the current deficit, while placing upward pressure on the import price index.

9:55AM: Consumer Sentiment (Risk: Neutral, Market Reaction: Marginal/Moderate): The current consensus on Bloomberg for the Reuters/University of Michigan Consumer Sentiment Index stands at 71.5 versus last month’s result of 70.8. The sentiment index is broken up into two parts, current conditions and future expectations. Investors are likely to focus more on this report after last week’s disappointing consumer confidence number. A positive or negative surprise in this index could impact the day’s trading.

10:00AM: Treasury Secretary Tim Geithner: Is set to testify before the House Financial Services and Agriculture Committees on derivatives regulation. This could create some headlines.

Have a good weekend!

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