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There are only two major data releases for January this week

Mon, Feb 19 2007, 11:37 GMT
by BHF-Bank Economics Department

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There are only two major data releases for January this week, which are likely to indicate that inflation is moderating and that growth could be stabilizing in the medium term: Consumer prices could have remained flat, mainly due to the sharp decrease in gasoline and other energy prices. Leading indicators might have risen again by 0.3% mom.

In December, consumer prices rose noticeably by 0.5%, but we expect them to have remained flat in January, due to the sharp decline in energy prices. Average gasoline prices, for example, went down by more than 3% mom. But December and January import price data indicate that food prices may have risen markedly, after having declined somewhat since November. After having risen by 0.6% mom in December, apparel prices may only have increased moderately, given the mild winter weather in the first half of the month.

The annual rate would thus fall below 2% again. Since September, it has remained in a range of 1–2.5%, noticeably lower than in spring and early summer, when it was over 4%.

Core CPI is expected to have gone up by 0.2% mom again. At 2.6%, the annual rate may have remained stable, albeit still at a relatively elevated level.

We expect leading indicators to have increased by 0.3% mom again in January. The main positive contributors will be real M2 and consumer expectations. Lower jobless claims and higher stock prices may have had a positive impact too.

But the decline in manufacturing working hours, the inverted yield curve, lower building permits, lower capital goods orders and faster deliveries are likely to have contributed negatively, making it a quite mixed report. The annualised 6- month rate might rise from 0.3% to 1.3%, which would be the highest since April 2006. This would indicate stabilization of economic growth in the 2nd half of 2007. But given that the annual rate is still in slightly negative territory at – 0.1%, growth rates will remain subdued in Q1 and Q2.

Initial jobless claims went up sharply by 44k to 357k in the week ending 10 February. The rise is probably connected with the heavy winter storms, which went on until the middle of February. In addition, the upward trend in continuing claims also seems to indicate that labour market conditions have begun to deteriorate slightly. At 340k, we thus expect initial jobless claims to have remained at a higher level in the week ending 10 February. This would be significantly higher than at the beginning of the year and the latest 4-week moving average of 326.3k.

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Published on  Mon, Feb 19 2007, 11:41 GMT

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