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The Week Ahead
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We expect job losses to continue as demand decelerates substantially
Mon, Sep 29 2008, 10:39 GMT
by Marcial Nava
Personal Income & Spending (Aug, Monday 8:30 ET)
F: 0.1, 0.2% C: 0.2, 0.2% P: -0.7, 0.2%
In the absence of tax rebates, personal income will expand by a modest pace, reflecting weakness in labor markets. In August, personal income probably increased 0.1% from -0.7% in July. In addition, we expect personal consumption expenditures (PCE) to increase 0.2% in August. When adjusted for prices variations, PCE most likely remained unchanged. For the third quarter as a whole, we expect PCE to slowdown significantly.
Consumer Confidence Index (Sep, Tuesday 10:00 ET)
F: 54.0 C: 55.0 P: 56.9
Although average gasoline prices stopped rising in September, consumers’ perceptions on the overall economic situation have been clouded by an avalanche of bad news coming from the financial meltdown. Therefore, we expect the Consumer Confidence Index to decline to 54 in September from 56.9 in August. Going forward, consumers are likely to continue dealing with job losses falling home prices and tighter credit standards. These developments should will confidence even further.
Manufacturing ISM (Sep, Wednesday, 8:30 ET)
F: 49.0 C: 50.0 P: 49.9
Negative readings on durable goods orders, auto sales and industrial production show that manufacturing activity remains weak. We expect the ISM manufacturing index to reflect this trend, standing at 49.0, slightly below its break even point of 50. At this level, the ISM suggests a contraction in manufacturing activity.
Nonfarm Payroll & Unemployment Rate (Sep, Friday, 08:30 ET
F: -90, 6.2% C: -90K, 6.1% P: -84K, 6.1%
We expect job losses to continue as demand decelerates substantially. High frequency indicators point to weakness in labor markets. Initial unemployment insurance claims have been rising steadily over the past five weeks; in the week ending September 19th, they jumped to 493,000 from 461,000 in the previous week. Excluding the 50,000 claims attributed to the effects of hurricanes Gustav and Ike, the four-week moving average stood at 452,000, the highest since November 2001. We also expect weakness in labor markets to be reflected by a higher unemployment rate, which probably jumped to 6.2% in September from 6.1% in August. As households’ net worth decreases, the number of jobseekers rises, leading to a significant increase in the number of unemployed persons. In our base scenario, the unemployment rate could climb up to 6.5% in coming months.
Construction Spending (Aug, Friday, 10:00 ET)
F: -0.3% C: -0.5% P: -0.6%
Construction spending probably contracted in August, primarily reflecting the impact of the housing meltdown. Over the past two years, spending on residential construction decreased dramatically by an average y-o-y rate of 19.5% per month. On the contrary, spending on non-residential construction remained solid, though recent figures suggest a modest deceleration. In fact, July’s non-residential construction spending grew 16% y-o-y, the lowest since January 2007. This trend is likely to deepen in the near future as financial strains have the potential to reduce the pace of non-residential investment.
Published on Mon, Sep 29 2008, 10:39 GMT
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Financial Bailout
Mon, Sep 22 2008, 13:02 GMT
by BBVA Bancomer Team
Hurricane Ike
Given the impact of hurricane Ike in our area, we were unable to electronically release our analysis last week. Fortunately we are pretty much back to normal. We would like to extend our sympathy to all those affected by this natural disaster and would also like to thank our colleagues and readers for their support during these difficult days.
Financial Bailout
During the weekend, the White House sent Congress a legislative proposal for Treasury authority to purchase mortgage-related assets. The Treasury expects legislation to be approved during the week, and is likely to be the most extensive government involvement in financial markets since the Great Depression.
The federal government is seeking unlimited powers from Congress to buy up to $700 billion in illiquid assets at a deep discount from financial institutions. The plan calls for an increase in the public debt limit to $11.315 trillion from $10.6bn. President Bush said Saturday that the plan matches the scope of the problem: "It is a big package because it's a big problem". Secretary Paulson said that "The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy".
The Treasury will probably run the program directly instead of creating a new entity, like the Resolution Trust Company which was in charge of dealing with the savings and loan crisis of the 1990s. Under the proposal, the Treasury will have the authority to buy home loans, mortgage-backed securities, commercial mortgage-related assets and probably, other kind of assets as deemed necessary to help stabilize financial markets. The Treasury could buy only assets issued or originated on or before September 17th. In addition, assets purchases will be through reverse auctions whereby institutions would propose a price for their mortgage-backed securities and the government would choose the lowest bids.
Bottom line
The package is aimed at helping institutions to clean up their balance sheets by removing bad-illiquid assets. This will halt write downs and ease pressures to raise capital. In addition, without these assets, market liquidity, funding conditions and risk perception will improve, which in turn, will allow credit markets to function normally. Nonetheless, the plan may not help some institutions which could remain under pressure even after eliminating these assets.
Some issues regarding the housing market remain uncertain. First, the plan by itself will not necessarily stop home prices from falling further although, it is likely to bring significant support to the mortgage market. Second, to change loan conditions and thus, significantly reduce delinquency and foreclosure rates, the government will have to acquire all the securities sold on a mortgage, and given the large number of investors involved, this may prove complicated.
Published on Mon, Sep 22 2008, 13:02 GMT
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After increasing 5.3% in June, pending home sales likely edged down 1.3% in July
Tue, Sep 9 2008, 07:48 GMT
by Marcial Nava
Pending Home Sales Index (July, Tuesday 10:00 ET)
F: -1.3% C: -1.5% P: 5.3%
After increasing 5.3% in June, pending home sales likely edged down 1.3% in July. In part, this downfall reflected a weaker activity during the summer months. It seems that pending home sales bottomed at 83 points back in March 2008. Since then, the index has jumped six points, suggesting that new home sales could stop falling and even improve slightly in the next few months.
Import Prices Index (August, Thursday 8:30 ET)
F: -1.2% C: -1.8% P: 1.7%
We expect import prices to decline in August, mainly reflecting a significant drop in oil prices. In fact, Brent crude oil decreased 15% to $113.89 per barrel from $134 in July. Moreover, in late August the U.S. dollar reached its strongest value in a year, against a trade-weighted basket of currencies from major trading partners –it appreciated 4.5% in August. Lower inflation readings will weaken the case for those expecting the Fed to rise interest rates sooner rather than later.
Trade Balance (July, Thursday, 8:30 ET)
F: -$58.3B C: -$58.0B P: -$56.8B
In June, exports soared by a record $6.4bn to $164.4bn, while imports increased by $4bn to $221.2bn, leaving the trade deficit at $56.8bn. For July, we expect exports of industrial supplies and capital goods to remain strong, although they are likely to expand at a more moderate pace than in the previous month. These trends are mainly the result of global economic slowdown. We anticipate a decline in imports albeit by a smaller magnitude than exports. Thus, the trade balance likely stood at -$58.3bn in July.
Retail Sales & Excluding Autos (August, Friday, 08:30 ET)
F: 0.1, -0.2% C: 0.3, -0.2% P: 1.2, 0.7%
Total retail sales probably increased in August boosted by auto sales, which rebounded 9.6%, following an 8.1% decline in the previous month. However, excluding autos, sales probably decreased 0.2% as a result of lower gasoline prices, which fell 6.8% in the month. Consumers will continue under significant pressures from job losses, lower real income growth, tighter credit conditions and decreasing wealth. For 3Q08, we expect a significant downward adjustment in personal consumption expenditure, which is likely to remain weak for several more quarters.
Headline PPI & Core (August, Friday, 08:30 ET)
F: -0.5, 0.2% C: -0.5, 0.2% P: 1.2, 0.7%
Headline PPI probably declined in August as a result of lower prices of oil and other crude materials. For example, aluminum declined 10%, copper 9% and corn 15%. These trends should help to contain pass-through effects to intermediate and final prices. We look for a 0.2% in core PPI from 0.7% in the previous month.
U. Michigan Consumer Sentiment Index (September, Friday, 10:00 ET)
F: 65 C: 64 P: 63
Lower prices at the pump will probably be overshadowed by increasing delinquencies and foreclosures in the housing market as well as ongoing job losses. Therefore, we expect the Consumer Sentiment Index to increase slightly in September.
Published on Tue, Sep 9 2008, 07:48 GMT
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In August, the nonmanufacturing ISM index probably continued in the contraction zone
Mon, Sep 1 2008, 08:48 GMT
by Marcial Nava
Manufacturing ISM Index (August, Tuesday 10:00 ET)
F: 48.5 C: 50.0 P: 49.6
Although manufacturing activity has benefited from solid demand abroad, a slowdown in domestic consumption and rising inventories are likely to limit its pace. Therefore, we expect the manufacturing ISM to remain below its breakeven point of 50 in August.
Total Vehicle Sales (August, Wednesday)
F: 12.1M C: 13.0M P: 12.5M
We expect total vehicle sales to remain weak, declining to 12.1M in August from 12.5M in July. Ongoing credit tightening, slowing real disposable income growth and weakening labor market conditions are restraining demand for durable goods. We expect personal consumption expenditures to decline in 3Q08.
Beige Book (Mid-July to late August, Wednesday 14.00ET)
Anecdotic evidence for the first half of 3Q08 is likely to reveal further sluggishness in the economy, caused largely by weaker consumer spending. The report will also show a broad based deterioration in lending conditions. However, on the positive side, districts are likely to report lower inflationary pressures as energy and commodity prices declined in August. We expect the Fed to maintain its target rate at 2.0% during FOMC next meeting on September 16th.
Nonmanufacturing ISM Index (August, Thursday, 10:00 ET)
F: 48.9 C: 49.5 P: 49.5
In August, the nonmanufacturing ISM index probably continued in the contraction zone. This reflects ongoing weakness in construction, financial and real estate sectors. Moreover, the report is likely to show further declines in services employment data. In contrast, educational, health care, accommodation and recreational services most likely remained resilient, although on a softening path. The recent weakness in both ISM indexes is consistent with a low GDP growth rate for 3Q08, which we expect at 0.4% on a SAAR quarterly basis, down from 3.3% in 2Q08.
Nonfarm Payroll & Unemployment Rate (August, Friday, 08:30 ET)
F: -65.0K, 5.7% C: -71.0K, 5.7% P: -51.0K, 5.7%
We expect total nonfarm payroll to decline 65K in August as construction and manufacturing employment continue declining. Construction averaged a loss of 41K per month in the first seven months of 2008 and has posted consecutive monthly declines since July 2007. Manufacturing has remained negative since July 2006, averaging 39K job losses per month in 2008. Payroll weakness has been recently exacerbated by job losses in the private services sector, which has shed 18K jobs on average per month in 2008 –vs. +115K in the same period of 2007. Government has buffered these trends as demand for education and other public services keeps growing. Although we expect further job losses as the economic downturn intensifies, these will be significantly milder compared to previous contraction periods. In August, the unemployment rate probably remained stable at 5.7%. However, we expect it to continue climbing as the number of jobseekers increases driven by a significant reduction in household wealth.
Published on Mon, Sep 1 2008, 08:48 GMT
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Personal income probably declined in July, following a 1.9% increase in the previous month
Mon, Aug 25 2008, 07:41 GMT
by Marcial Nava
Consumer Confidence (August, Tuesday 10:00 ET)
F: 52.5 C: 53.0 P: 51.9
Consumers’ assessments on current and future economic conditions may have improved in August favored by a decline in gasoline prices. Over the past five weeks, prices at the pump have declined by an average weekly rate of 1.5%, standing at $3.79 per gallon in the week ending August 18th. Consequently, we expect the Conference Board Consumer Confidence Index to increase slightly to 52.5 from 51.9 in July.
Personal Income & Spending (Jul, Friday 8:30 ET)
F: -0.2, 0.2 C: -0.1, 0.3% P: 1.9, 0.8%
Personal income probably declined in July, following a 1.9% increase in the previous month. June’s rebound in personal income was due to tax rebates. In fact, when excluding this transfers, real personal income declined 0.1% yoy, the lowest since August 2005. We expect real personal income to return to its previous downward trend once the effect of the fiscal stimulus vanishes. On the other side, personal spending growth will decelerate from 0.8% in June to 0.2% in July, as demand for non-durable goods adjusts to the downside. Second quarter GDP report showed that tax rebates boosted non-durable goods purchases, while spending on durable goods declined and that on services moderated. In the absence of fiscal incentives, private spending is likely to decelerate significantly in the third quarter.
FOMC Minutes (August 5th Meeting, Tuesday, 14:00 ET)
We expect the FOMC minutes to reveal an intense debate regarding the future of monetaty policy. Within the Fed, oppinions are divided between those who would like to see higher interest rates in orther to bring down inflationary pressures and those who prefer a prolongued pause given the ongoing deterioration of economic activity and the recent decline in commodity prices. Last week, Jeffrey Lacker (Richmond Fed president) mentioned that the Fed should not wait until the end of the financial meltdown before raising interests rates to push inflation down. In the same week, however, Gary Stern (Minneapolis Fed president) noted that a decline in oil prices will probably bring down headline inflation, allowing the Fed to be “patient” in deciding when to change interest rates. In our view, the Fed is likely to keep its target rate unaltered until the second half of 2009. This is because downside risks to economic activity persist and could intensify in the next quarters as foreign demand weakens and financial distress continues. On the inflation front, we expect worlds’ GDP deceleration to curb commodity prices and thus upward pressures.
Gross Domestic Product (Preliminary, 2Q08, Thursday 8:30 ET)
F: 3.0% C: 2.7% P: 1.9%
2Q08 GDP growth could be revised up, primarily reflecting a stronger growth of exports. Similarly, change in private inventories could be revised up as suggested by June’s rebound in business inventories. Thus, we expect GDP growth at 3% in 2Q08, equivalent to a 2.1% increase on a yearto- year basis. However, despite this positive revision, we continue to expect a significant deceleration of GDP growth in the second half on the year, largely driven by a slowing consumer spending, the ongoing housing correction and a significant moderation in the pace of non-residential investment. Moreover, net exports’ contribution is likely to diminish as foreign demand decelerates.
Published on Mon, Aug 25 2008, 07:41 GMT
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We expect headline producer prices to increase 0.8% in July
Mon, Aug 18 2008, 08:38 GMT
by Marcial Nava, Alejandro Neut
Housing Starts & Building Permits (Jul, Tuesday 8:30 am)
F: 945, 966K C: 960, 970K P: 1066, 1091K
After reaching record highs in 2005, housing starts have adjusted downwards 1.3 million on average per year. However, this trend has not been enough to reduce excess housing supply. We anticipate July’s housing starts to edge down to 945K from 1,066K in the previous month. Likewise, building permits likely declined to 966K from 1,092 in June. Thus residential investment will subtract to GDP growth in both 2008 and 2009.
Producer Price Index (Jul, Tuesday 8:30 am)
F: 0.8%, 0.2% C: 0.6%, 0.2%K P: 1.8%, 0.2%K
We expect headline producer prices to increase 0.8% in July, as a result of elevated fuel and commodity prices. Although firms continue to face ongoing significant pressures in the first stages of production, the passthrough to finished goods other than energy and food has been limited. Thus, we expect core inflation at 0.2% in July, a similar rate as in the previous month. Going forward, the declines in some commodity prices at the end of July and the beginning of August will result in a sharp drop in headline inflation figures for this month, supporting our forecast of stable Fed funds at 2% for the rest of the year.
Philadelphia Index (Aug, Thursday, 10:00 ET)
F: -13.0, -30.0 C: -5.0, -18.0 P: -11.7, -24.0
The Philly Fed Index has declined for eight consecutive months and will very likely drop once again in August. As a result of weaker consumption, bussiness inventories are increasing and firms are scaling back production, to levels not seen since the last recession. This trend suggests that business confidence is likely to edge down and industrial production could decline in coming months. On the one hand, the housing downturn is limiting a recovery in new orders of building equipment and materials, and on the other hand, elevated commodity and energy prices are shrinking profit margins.
Conference Board’s Index of Leading Indicators (Jul, Thu. 10:00 ET)
F: -0.1% C: -0.2% P: -0.1%
During July, the economic indicators comprised in the leading index showed mixed results. For example, ISM new orders, initial jobless claims and the stock market worsened while consumer confidence, building permits and supplier deliveries stop falling. As a result, we expect July’s LEI to decline 0.1% for the second consecutive month. This is consistent with our expectation of economic weakness as we head into the second half of the third quarter. Households are likely to hold back spending as a result of slower real disposable income growth and tighter credit conditions –as financial institutions continue deleveraging. Moreover, net exports are likely to moderate as sluggish demand abroad reduces exports growth. Meanwhile, nonresidential investment will continue to decelerate although it will remain stronger than overall GDP. Finally, the housing downturn will continue for several more quarters.
Published on Mon, Aug 18 2008, 08:38 GMT
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This, in turn, will limit the growth of non−residential investment
Mon, Jul 21 2008, 09:07 GMT
by Marcial Nava, Alejandro Neut
Conference Board’s Index of Leading Indicators (June, Monday 8:30 ET) F: -0.5% C: -0.1% P: 0.1%
Some indicators used to calculate the leading index worsened significantly in June, reflecting a deterioration of economic activity at the end of the second quarter. For instance, the Consumer Confidence Index fell to the lowest level since February 1992, while the S&P 500 declined 4.4% amid bad news on the financial and energy fronts. On the manufacturing side, average hours worked decreased for the third consecutive month, reflecting weaker conditions in the industry. Moreover, the labor market deteriorated further as jobless insurance claims increased substantially in June. These negative trends will be partially offset by gains in vendor performance, building permits and, presumably in manufacturing goods orders. As a result, the LEI will decline 0.5% from 0.1% in May.
Durable Goods Orders (June, Friday 8:30 ET) F: 0.3% C: 0.1% P: 0.0%
Durable goods orders will bounce back after three consecutive months of negative readings. The increase is likely to be driven by volatility in transportation and defense. However, on a year-over-year basis, orders will continue on a downward trend, with autos and housing-related goods experiencing the sharpest slowdown. This is consistent with a slower pace of consumers’ spending. On the other side, orders of capital goods excluding defense and aircraft probably decreased on a monthly basis. Going forward, we expect them to be hit by a sluggish demand and credit constrains. This, in turn, will limit the growth of non-residential investment.
Existing & New Home Sales (June, Thursday & Friday, 10.00 & 8:30 ET) F: 4.85M, 500K C: 4.95M, 505K P: 4.99M, 512K
We expect both new and existing home sales to decrease further in June. Rising energy costs, job losses, falling home prices and increasing tensions in the mortgage market have prompted many potential buyers to stop looking for a house and wait until conditions improve. Unfortunately, leading indicators suggest that the outlook for the housing sector is still gloomy. For instance, the NAHB Housing Market Index plunged to 16 in July, its lowest level on record. In our main scenario, the housing market will not recover until the second half of 2009.
Beige Book (June to mid-July, Wednesday, 14.00 ET)
The Beige Book will probably show all US regions fraught with dual inflationary/recessionary tensions. Oil prices remain the nationwide threat to price stability, while the nation’s strained financial system (illustrated these past weeks by Fannie Mae and Freddie Mac) remains the principal obstacle to future growth. In addition, traditional cyclical dynamics, such as the worsening of consumer confidence, will be recognized across the board. But regions will present a different balance of risks, in line with the different views expressed by Board members in the last FOMC meeting. In that regard, risks to growth will not be as dominant in Texas (where the Fed is headed by Fed President Fisher) as they are in, for example, Michigan.
Published on Mon, Jul 21 2008, 09:07 GMT
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Supported by tax rebates and lax monetary policy
Mon, Jul 14 2008, 09:32 GMT
by Marcial Nava, Alejandro Neut
Retail & Food Services Sales (June, Tuesday 8:30 ET)
F: 0.2, 0.7% C: 0.3, 0.8% P: 1.0, 1.2%
Supported by tax rebates and lax monetary policy, consumer spending, particularly on non-durable goods and services, proved resilient in the second quarter. On the contrary, spending on durable goods deteriorated significantly. For instance, auto sales –about a third of total consumers’ spending on durable goods- dropped 4.9% to 13.6 million of annualized units in June; this was the lowest level since August 1993. We look for a 0.2% increase in nominal retail and food services sales in June. However, excluding autos, sales probably rose 0.7%, boosted by sales at gas stations. Unfortunately, this boost is only nominal and related with higher gasoline prices. Moreover, when adjusted by our CPI inflation forecast, total sales probably declined 0.4%. In the next months, consumer spending will be hit by a weak labor market and a reduction in households’ net worth.
FOMC Minutes (June 25th Meeting, Wednesday 14:00 ET)
During its last meeting, the FOMC kept the Fed funds rate at 2% while releasing a hawkish statement, in which members acknowledged rising inflationary pressures, but remained cautious about the health of the real economy. As a result, minutes will probably reflect the Fed’s predominant view that inflationary pressures come from soaring commodity prices, but have not yet infected core inflation. In addition, minutes will probably stress the importance of inflation expectations in future monetary policy actions. We also expect the minutes to confirm the growing uncertainty within the Fed. Remember that last FOMC decision was not a unanimous vote. Instead, one of the ten members voted in favor of a rate hike, showing a glimpse of the heated debate that probably ensued. Finally, it is important to note that the expected emphasis on inflation is already discounted by market participants, and that troubles with Fannie Mae and Freddie Mac (and recent speeches aimed at calming the markets) will probably take the spotlight away from these minutes.
Industrial Production & Capacity Utilization (June, Wednesday 9:15 ET)
F: -0.3, 79.2% C: 0.0, 79.3% P: -0.2, 79.4%
Throughout this year, regional industrial and consumer surveys have been steadily worsening. Accordingly, manufacturers have been scaling back production in face of weaker demand. Even though GDP numbers have not been as bad as many analysts were expecting, we think that next week’s industrial production numbers will not yet signal any recovery. Neither should we expect any sign of recovery in the next few months. Leading indicators of manufacturing production (such as the Empire State Index) will probably show a continuation of the slowing economic trend.
Headline CPI & Core (June, Wednesday 8:30 ET)
F: 0.6, 0.2% C: 0.7, 0.2% P: 0.6, 0.2%
Headline CPI will show a stark increase, while core inflation will remain contained. Oil prices alone explain the divergence between these two price indices. Oil prices have broken the 140 dollars per barrel, and are rapidly approaching the 150 dollars mark. But inflationary pressures have a broader base than oil alone. The dollar has continued its depreciatory trend, with an effect still to be seen in core prices. However, the risks of a passthrough are contained by the weaker domestic demand associated to the current economic downturn.
Published on Mon, Jul 14 2008, 09:32 GMT
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PPI, FOMC Minutes, Existing Home Sales, Leading Indicators and Jobless Claims
Mon, May 19 2008, 10:56 GMT
by BBVA Bancomer Team
Headline Producer Price Index (PPI) & Core (April, Tuesday 8.30 ET)
F: 0.8, 0.2% C: 0.4, 0.2% P: 1.1, 0.2%
We expect PPI inflation to moderate in April as energy prices increased at a slower rate than in the previous month. Excluding food and energy, core inflation probably remained steady at 0.2%. Trends at the earlier stages of production have become worrying. Over the past eight months, year-overyear core PPI inflation has accelerated both for intermediate goods and crude materials. This has started to affect inflation for finished goods, which has risen steadily since January 2008. Significant pressures at the producer level have the potential to pass on consumer prices. The FOMC is aware of this and the recent upsurge in short-term inflation expectations; therefore, it could respond by keeping interest rates unchanged in the next meeting.
FOMC Minutes (April 30th Meeting, Wednesday 2:00 ET)
We expect FOMC minutes to be consistent with our expectations of a pause in monetary policy. Since April 30th, the outlook for both economic activity and inflation has not change significantly. Downside risks to economic growth persist while core inflation continued under control. Nevertheless, headline inflation and inflation expectations have deteriorated. The Fed is worry about the continuing increase in the cost of energy and other commodities, and although it expects these prices to moderate over time, there is more uncertainty about their medium term path.
Existing Home Sales (April, Friday 8:30 ET)
F: 4.70M C: 4.85M P: 4.93M
Existing home sales could have deteriorated in April. Recently, falling home prices, lower mortgage rates and solid income growth have improved affordability ratios. Under normal conditions, sustained improvements in affordability should lead to an increase in home sales. However, in the current crisis, the positive effects of higher affordability have been more than offset by tighter credit conditions. In our base scenario, home sales will not reach a bottom until 2009.
Leading Economic Indicators Index (April, Monday 8:30ET)
F: 0.1% C: 0.0% P: 0.1%
The Conference Board Index of Leading Indicators may have increased in April due to more positive readings than in the previous month. On the upside, there was an improvement in jobless claims, vendor performance, interest rates spreads and stock markets. On the downside, hours worked in the manufacturing sector declined significantly while consumer confidence continued to deteriorate. Moreover, manufacturing new orders probably decreased.
Unemployment Insurance Claims (May 17th, Thursday 8:30ET)
F: 375K C: 373K P: 371K
Labor markets will weaken further in the second quarter. Thus, we expect initial and continuing unemployment insurance claims to be consistent with this prospect. Recent figures suggest that, although on an upward trend, initial claims remain well below the levels of previous recessions.
Published on Mon, May 19 2008, 10:56 GMT
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Retail Sales, CPI, Import Prices and Consumer Confidence
Tue, May 13 2008, 06:01 GMT
by BBVA Bancomer Team
Retail Sales & Excluding Autos (April, Tuesday 8.30 ET)
F: 0.0, 0.1% C: 0.0, 0.2% P: 0.2, 0.1%
We expect retail sales to remain unaltered in April as sales of autos declined and sales at gas stations rose in the month. Excluding autos, sales probably increased 0.1%, mostly inflated by the cost of gasoline. In fact, when adjusted for prices variations, our forecasts depict a gloomier situation than it appears by looking at nominal figures. For instance, when deflated by our CPI forecast, our estimate of total sales decline 0.3%. In 1Q08, real sales decreased by an average monthly rate of 0.1% as consumers struggled with higher commodity prices and weaker labor markets. These trends continue in the second quarter and will probably lead to a decline in total private spending.
Headline CPI & Core (April, Wednesday 8:30 ET)
F: 0.3, 0.2% C: 0.3, 0.2% P: 0.3, 0.2%
Headline CPI and core will remain contained, but this does not mean inflationary risks are nonexistent. Until now, lower labor costs and loss of consumer confidence have helped to contain inflationary pressures. But these pressures -oil, dollar, and now food prices- have intensified, and although most of them have no direct impact in core inflation, the Fed is increasingly worried about their repercussions.
Import Prices Index (April, Tuesday 8:30 ET)
F: 1.5% C: 1.6% P: 2.8%
We expect import prices to have risen during April, albeit at a lower pace than in previous months. Our forecast primarily reflects the observed deceleration in both dollar depreciation and oil price increases. Oil prices rose 6.7% during April (compared to 8.9% during March) and the dollar also depreciated at a lower rate with respect to most currencies. Furthermore, a slowing domestic demand (as seen by trade data released this week) is helping to contain the recent momentum of import price increases.
Empire State & Philadelphia Indices (May, Thursday 8:30 and 10.00 ET respectively)
F: -0.1, -27.0 C: 0.0, -20.0 P: 0.6, -24.9
Regional industrial indices will worsen in May. In our view, firms are likely to scale back production in the next months in order to reduce their relatively high levels of inventories. This development together with the slowdown of consumer spending and the negative contribution of residential investment will lead to a contraction in GDP during the second quarter.
Consumer Confidence (May, Friday 8:30 ET)
F: 60.0 C: 62.6 P: 62.2
The main factors influencing consumers’ sentiment still point to the downside. Gasoline prices keep rising while labor markets continue to loose momentum. Besides these traditional determinants we must add the negative effects of the housing crisis and the financial turmoil. Thus, we expect the U. of Michigan Consumer Confidence Index to edge down to 60 in May, reaching its lowest reading since June 1980.
Published on Tue, May 13 2008, 06:01 GMT
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Productivity, Wholesale Inventories, Trade Balance and Jobless Claims
Tue, May 6 2008, 15:14 GMT
by BBVA Bancomer Team
Productivity and ULC (1Q08, Wednesday 8:30 ET)
F: 1.3, 1.7% C: 1.7, 2.6% P: 1.9, 2.6%
As GDP figures suggested, productivity likely expanded 1.3% in the first quarter. This is equivalent to a 3.0% change on a year-over-year basis, still above productivity’s long-term trend, estimated at 2-2.5%. Productivity could decelerate significantly or even decrease in the second quarter due output contraction –we expect GDP to decrease in 2Q08- and relatively mild job losses.
We also expect unit labor costs to increase 1.7% in 1Q08 (from 2.6% in 4Q07), helped by solid productivity gains and some moderation in the pace of compensations. Labor compensations softened in 1Q08 as implied by the Employment Cost Index, which grew 0.7% q-o-q in 1Q08, its lowest quarterly increase since September 2005. A lower pace of unit labor costs should help to contain inflationary pressures.
Wholesale Inventories (March, Thursday 8:30 ET)
F: 0.5% C: 0.4% P: 1.1%
Inventories have been rising due to a weak demand. In fact, higher inventories were one of the main causes behind GDP growth in 1Q08. We look for a 0.5% increase in manufacturers’ wholesale inventories in March. As a result, first quarter change in private inventories could be revised upwards, leading to an even higher rate of GDP growth. For the second quarter, however, a negative contribution is more likely as firms will probably reduce their stockpiles to more sustainable levels.
Trade Balance (March, Friday, 8:30 ET)
F:-60.3B C: -61.3B P: -62.3B
We expect the nominal trade deficit to narrow in March as exports continue to increase at a faster rate than imports. Recently international trade has given a significant support to GDP growth, partially offsetting the effects of a sluggish domestic demand. From February 2007 to February 2008, real exports have outpaced the rest of the economy, growing by an average y-oy rate of 8.5%. This was the result of a robust growth overseas and a weak exchange rate. In the same period imports expanded only 1.9%.
Initial Jobless Claims (May 3rd, Thursday, 8:30 ET)
F: 370K C: 375K P: 380K
Initial jobless claims remain relatively high as the labor market slows down; yet, they continue to be below the levels of previous economic downturns. When compared to prior recession episodes, current losses in employment are low, supporting our prospect of a significant economic slowdown in 2008 but not a severe recession. Nevertheless, we need to be cautious before claiming the end of the employment downturn. This is because the main risks to economic activity persist - the housing meltdown continues while financial markets conditions are still fragile- and have the potential to deteriorate the labor market situation even further. Employment reacts with some lag and thus, major adjustments are still likely.
Published on Tue, May 6 2008, 15:14 GMT
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In its next meeting the FOMC will probably reduce rates by only 25bp to 2%
Mon, Apr 28 2008, 08:27 GMT
by BBVA Bancomer Team
FOMC Policy Announcement (April 29-30th)
Fed Funds Forecast: 2.0% C: 2.0% P: 2.25%
In its next meeting the FOMC will probably reduce rates by only 25bp to 2%. Two reasons stand behind the deceleration of cuts: inflationary pressures and the use of other (and more effective) tools to address the current financial turmoil. We do not expect that the FOMC will decide to pause just yet, mainly because it would send the message that the rate cycle has touched bottom. The Fed is not ready or willing to send such a signal when, in words of Bernanke, the economy still faces downside risks due to the fact that “financial markets remain under considerable stress”. Thus, as long as the stress persists, members will be biased towards additional easing. In our worst scenario, rates may go down to 1.5%, while if conditions improve, FOMC could pause under a wait-and-see strategy, and even hike rates by year-end.
Gross Domestic Product (1Q08, Thursday 8:30 ET)
F: 1.0% C: 0.4% P: 0.6%
We expect GDP growth in 1Q08 to be 1% on a quarterly annualized basis – higher than average consensus and stronger than 4Q07. Our optimism is solely based on an expected rebound in inventory accumulation, which experienced a sharp decline in 4Q07. In addition, contribution from net exports will remain strong while nonresidential investment will continue growing well above overall GDP (though will probably moderate). In contrast, the drag from residential investment will remain and personal consumption expenditures will probably decelerate substantially. We expect an inventory correction in 2Q08 and thus GDP growth in the following quarter is likely to be negative. For 2008 we maintain our forecast of 1% GDP growth, with a slow recovery starting in the second half of the year.
Nonfarm Payroll (April, Friday, 8:30 ET)
F: -100K C: -80K P: -80K
We expect labor markets to deteriorate further. The decline would be in line with the rise on jobless initial and continuing claims during the past weeks. We acknowledge that weekly jobless claims are extremely volatile, but their rise is consistent with other worsening signs. Important indications of further decline in labor markets are: the bleak evaluation reflected in the latest Beige Book and the significant decline in recent retail and housing sales. Continuing the worsening trend since early this year, we expect employment in the private sector to weaken at a larger pace than the offsetting gains from higher employment in the public sector. As before, private sector employment will probably show its worst numbers in the labor-intensive construction sector. It is again important to emphasize that, after several months of negative payroll data, up to now the labor contraction is relatively moderate when compared with other cyclical downturns.
Consumer Confidence (April, Tuesday, 8:30 ET)
F: 61.0 C: 62.0 P: 64.5
Consumer confidence continues to deteriorate. In particular, consumer prospects on the overall state of the economy will remain at an alarming low level (last seen during the 1973 recession). Expectations will start improving only when current uncertainty about the housing and financial markets starts to dissipate.
Published on Mon, Apr 28 2008, 08:27 GMT
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The housing market has not bottomed yet
Tue, Apr 22 2008, 05:56 GMT
by BBVA Bancomer Team
Existing & New Home Sales (March, Tuesday and Thursday 8:30 and 10:00 ET respectively)
F: 4.80M, 580K C: 4.95M, 585K P: 5.03M, 590K
The housing market has not bottomed yet. We expect both existing and new home sales to continue their downward trend throughout 2008. The slowdown in the housing market is already worse than the one observed during the previous recession (2001), and is likely to become worse than the 1991 recession.
In February, existing home sales were 23.8% below the level of a year earlier and 31% less than their last peak of 7.25 million in September 2005. The current six-month-average is 5 million, slightly lower than the average of 5.3 million observed during the 2001 recession.
New and existing home sales have historically trended together, and will continue to do so. From October 2007 to February 2008, new home sales averaged only 641 thousand. To find such a low number one has to go back to 1994. New home sales barely decreased during the 2001 recession. We expect new home sales to continue their downward trend and hit the 500 thousand low observed during the 1991 recession.
The fact that we expect numbers as bad as in 1991 is indicative of a worse scenario than the one lived back then. A similar impact would have given us larger sales numbers in order to take account of immigration and population growth. Factors behind our prediction are: job destruction, high inventories and a significant reduction in prices that affects the decisions of buyers and sellers. On the upside, we observe lower real rates than in previous episodes (although under the current credit crunch the benefits of such rate reductions are diminished).
Durable Goods Orders & Excluding Transportation (March, Thursday 8:30 ET)
F: -0.4, -0.1% C: 0.1, 0.6% P: -1.7, -2.6%
Durable goods orders –a leading indicator of industrial output- probably declined 0.4% in March, following a 1.7% drop in the previous month. The decline is consistent with a slower pace of economic activity. Excluding transportation, orders probably fell 0.1%, with the twelve-month change at 0.3%. Orders of machinery, electrical components and appliances have been significantly affected by the housing meltdown. Declining durable goods orders suggest a slower pace of industrial production going forward.
Initial Jobless Claims (April 19th, Thursday 8:30 ET)
F: 376K C: 375K P: 372K
We expect initial jobless claims -a high-frequency gauge of labor market trends- to increase slightly in the week ending April 19th, suggesting weakness in the nonfarm payroll. Initial claims had increased steadily since mid-2007, but accelerated in recent weeks, consistent with negative payroll figures in 1Q08. Moreover, continuing claims –which track the number of individuals who are unemployed and are currently receiving unemployment benefits- reached a bottom in mid-2006 and have climbed steadily since then, meaning that individuals are spending more time without a job. However, continuing claims are still below the levels of previous recessions.
Published on Tue, Apr 22 2008, 05:56 GMT
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In March, the rise in gasoline prices boosted nominal retail sales
Mon, Apr 14 2008, 07:40 GMT
by BBVA Bancomer Team
Headline CPI Inflation & Core (March, Wednesday 8:30 am)
F: 0.3, 0.1% C: 0.3, 0.2% P: 0.0, 0.0%
Inflated by higher energy prices, the Consumer Prices Index probably rose 0.3% in March from no change in February. The average gasoline price jumped 5.0% in March to $3.30 per gallon. On a year-over-year basis, we expect CPI inflation to soften slightly to 4% from 4.1% in February, still a relatively high rate. Persistently high energy and food prices continue to be risky for the inflation outlook; however, these prices are likely to stabilize in the near-term as economic growth decelerates. We look for a 0.1% increase in consumer prices excluding food and energy, with the year-to-year change at 2.3%, similar to the average of the past twelve months. Falling home prices continued to have a positive effect on the shelter component. Going forward, core inflation should slow down as the rate of resources utilization diminishes.
Total Retail Sales & Excluding Autos (March, Monday 8:30)
F: 0.2, 0.1% C: 0.1, 0.2% P: -0.6, -0.2%
In March, the rise in gasoline prices boosted nominal retail sales, which we expect to increase by 0.2% following a 0.6% drop in the prior month. Nonetheless, when adjusted with our CPI forecast, total retail sales probably declined 0.1%. This is consistent with several big retailers reporting weaker sales in the month. Consumers are reducing their spending on goods in light of deteriorating labor markets and rising energy and food prices. For the quarter as a whole, we expect personal consumer expenditures to decrease by a seasonally adjusted annual rate of 0.1%.
Beige Book (March to mid-April, Wednesday 8:30)
The Beige Book will reflect a dimmer economic outlook than in previous issues. The report is likely to reflect a noticeable slowdown of consumer spending. Besides, it will probably elaborate on the Fed’s three stated suspects: Falling employment, rising energy prices and tightening credit conditions. Non residential investment will probably be seen as weakened by the tightening supply of credit, increased pessimism about economic prospects and heightened caution on the part of business managers. Exports will probably be the only aggregate sector showing some resilience.
Industrial Output & Capacity Utilization (March, Monday 8:30)
F: -0.1, 81.2% C: -0.1, 81.4% P: -0.5, 81.4%
Since the beginning of this year, regional industrial surveys and inventories data have been consistent with a deceleration of industrial output on a national scale. Manufacturers seem to be scaling back production in face of a weaker demand. We expect industrial output to decline 0.1% in March, following a 0.5% drop in February. Sluggish industrial activity should release some pressures over the pace of resources utilization. Thus, we expect the rate of industrial capacity utilization (CU) to moderate from 81.4 to 81.2%. At this rate, the CU will remain above its ten-year average, suggesting that factory usage could decline further in the coming months. More slack in the economy could help to contain inflationary pressures.
Published on Mon, Apr 14 2008, 07:40 GMT
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FOMC minutes will reflect a more pessimistic view on economic activity
Fri, Apr 4 2008, 09:54 GMT
by BBVA Bancomer Team
FOMC Minutes (March 18th meeting, Tuesday 2:00 pm)
FOMC minutes will reflect a more pessimistic view on economic activity, in line with economic readings subsequent to the last scheduled meeting. The FOMC probably acknowledged that the economy contracted slightly in the first quarter, as suggested by Bernanke’s Testimony to the Congress. In addition, minutes are likely to reflect more concern about inflationary pressures, as suggested by the two votes against the 75 bp rate cut. Given the more pessimistic view on the current condition of financial markets -and the risks it poses to the overall economy- Fed could reduce interests rates further. We expect an additional cut of 25 or 50 bp on April 30th, depending on how financial and economic variables evolve during the inter-meeting period. In that sense, March’s employment figures (we expect a 95,000 lost in the non-farm payroll) will be critical. A more moderate stance is also supported by FOMC intentions to asses the impact of recent rate cuts and additional liquidity actions on the economy before continuing its easing policy.
Import Prices Index (March, Friday 8:30 am)
F: 1.0% C: 0.9% P: 0.2%
We expect a significant increase in import prices caused by two main factors: higher energy prices and dollar weakness. Oil prices surpassed $100 per barrel in March, increasing the value of energy-related imports. Going forward, we expect oil prices to level out as economic activity decelerates. The dollar continued to lose value against major currencies, making imported goods more expensive. For instance, the trade-weighted exchange rate index fell 1.9% in March, the lowest rate in five months. In the short-run, dollar weakness is likely to put additional pressures on import prices; however, in the medium-run, relatively solid fundamentals could cause the dollar to appreciate against major currencies, easing pressures on prices of foreign goods.
Trade Balance (February, Thursday 8:30 am)
F: -$59.0B C: -$57.8B P: -$58.2B
The trade deficit probably increased during February. We expect a small nominal expansion because of the continuing rise in oil prices that have yet to drop. However, when excluding trade on commodities, the deficit probably narrowed. The main factor behind this reduction is the current weakness of the dollar coupled with sustained growth abroad. Given that exchange rate depreciation affect the trade balance differently in the short and medium-run (negatively in the short-run and positively in the medium- run), we are still waiting for the gain in competitiveness to fully materialize. Together with the expected drop in oil prices, going forward net exports will keep on contributing positively to real GDP.
Pending Home Sales (February, Tuesday 8:30 am)
F: -1.0% C: -0.8% P: 0.0%
In line with the deterioration of the housing market, we expect a decline in pending home sales. Albeit these readings will correspond to those of past February, they will be a relevant indicator of current trends. The reason is that Pending Home Sales are a well documented leading indicator for the more general housing market.
Published on Fri, Apr 4 2008, 09:54 GMT
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Nonfarm Payroll & Unemployment Rate
Mon, Mar 31 2008, 14:11 GMT
by BBVA Bancomer Team
Nonfarm Payroll & Unemployment Rate (March, Friday 8:30 am)
F: -95K, 5.0% C: -80K, 5.0% P: -63K, 4.9%
Labor markets will continue to deteriorate. In recent weeks, jobless claims climbed, though at a relatively modest pace. In accordance, our estimate points to a “not terrible but worrisome” 95,000 decrease in March’s nonfarm payroll, a relatively moderate contraction when compared to previous recessionary cycles. Although this has made some analysts to predict a mild recession, we preferred to take a more cautious approach since employment followed GDP growth with some lag during the last recession. In fact, leading indicators suggest that employment could decline further. This is the case of consumers’ confidence, which has plummeted recently, especially in reference to expectations about the near future. According to the Conference Board Consumer Confidence Survey, 27.9% of respondents expected fewer jobs in the next six months. This was the highest share in five years. Moreover, the expectations index –which captures consumers’ prospects on the overall economy- declined to 47.9 in March, the lowest figure since December 1973.
Looking at different sectors, we expect construction and manufacturing to maintain a downward trend. Over the past twelve months, non-farm payroll in these sectors declined by an average monthly rate of 25,000 respectively. We expect employment in private services to weaken substantially in coming months as suggested by current trends in temporary and help services employment. Finally, although the government has been an important source of employment creation, its capacity to offset losses in the private sector will diminish as economic growth continues to decelerate. Putting together, all this factors could lead to more negative employment figures going forward.
Manufacturing ISM Index (March, Tuesday 8:30 am)
F: 47.8 C: 47.5 P: 48.3
The manufacturing ISM index is a leading indicator for the real economy. An index below 50 for some time implies that manufacturing output is contracting. This index has average 49.1 in the past three months, and we expect it to decline further in accordance with recent worsening readings on financial and industrial sectors.
Non-manufacturing ISM Index (March, Wednesday 8:30)
F: 48.0 C: 48.5 P: 49.3
As hinted by payrolls data, the service sector has better endured this economic cycle. But the non manufacturing ISM index has already slipped below 50 and we expect it to fall further, in unison with Manufacturing ISM. A non manufacturing index below 50 is consistent with other leading indicators that point to further deterioration in labor markets.
Chicago PMI Index (March, Monday 8:30)
F: 45.0 C: 46.5 P: 44.5
Reflecting the general mood, we expect the Chicago PMI index to also stay below the 50 benchmark. The slight rise with respect to the previous month should not be interpreted as a potential sign of an upturn. Instead, it only reflects some volatility steaming from the sharp drop experienced in the previous month.
Published on Mon, Mar 31 2008, 14:11 GMT
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Nonfarm Payroll & Unemployment Rate
Mon, Mar 31 2008, 14:11 GMT
by BBVA Bancomer Team
Nonfarm Payroll & Unemployment Rate (March, Friday 8:30 am)
F: -95K, 5.0% C: -80K, 5.0% P: -63K, 4.9%
Labor markets will continue to deteriorate. In recent weeks, jobless claims climbed, though at a relatively modest pace. In accordance, our estimate points to a “not terrible but worrisome” 95,000 decrease in March’s nonfarm payroll, a relatively moderate contraction when compared to previous recessionary cycles. Although this has made some analysts to predict a mild recession, we preferred to take a more cautious approach since employment followed GDP growth with some lag during the last recession. In fact, leading indicators suggest that employment could decline further. This is the case of consumers’ confidence, which has plummeted recently, especially in reference to expectations about the near future. According to the Conference Board Consumer Confidence Survey, 27.9% of respondents expected fewer jobs in the next six months. This was the highest share in five years. Moreover, the expectations index –which captures consumers’ prospects on the overall economy- declined to 47.9 in March, the lowest figure since December 1973.
Looking at different sectors, we expect construction and manufacturing to maintain a downward trend. Over the past twelve months, non-farm payroll in these sectors declined by an average monthly rate of 25,000 respectively. We expect employment in private services to weaken substantially in coming months as suggested by current trends in temporary and help services employment. Finally, although the government has been an important source of employment creation, its capacity to offset losses in the private sector will diminish as economic growth continues to decelerate. Putting together, all this factors could lead to more negative employment figures going forward.
Manufacturing ISM Index (March, Tuesday 8:30 am)
F: 47.8 C: 47.5 P: 48.3
The manufacturing ISM index is a leading indicator for the real economy. An index below 50 for some time implies that manufacturing output is contracting. This index has average 49.1 in the past three months, and we expect it to decline further in accordance with recent worsening readings on financial and industrial sectors.
Non-manufacturing ISM Index (March, Wednesday 8:30)
F: 48.0 C: 48.5 P: 49.3
As hinted by payrolls data, the service sector has better endured this economic cycle. But the non manufacturing ISM index has already slipped below 50 and we expect it to fall further, in unison with Manufacturing ISM. A non manufacturing index below 50 is consistent with other leading indicators that point to further deterioration in labor markets.
Chicago PMI Index (March, Monday 8:30)
F: 45.0 C: 46.5 P: 44.5
Reflecting the general mood, we expect the Chicago PMI index to also stay below the 50 benchmark. The slight rise with respect to the previous month should not be interpreted as a potential sign of an upturn. Instead, it only reflects some volatility steaming from the sharp drop experienced in the previous month.
Published on Mon, Mar 31 2008, 12:58 GMT
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Existing & New Home Sales
Thu, Mar 20 2008, 16:09 GMT
by Luis Arregoces
Existing & New Home Sales (February, Monday and Wednesday, 10:00 and 8:30 respectively)
F: 4.70M, 600K C: 4.86M, 580K P: 4.89M, 588K
Housing demand has not bottomed yet and homebuyers have adopted a wait-and-see attitude toward home prices. Thus, we expect housing demand to weaken further as prices keep falling. In our view, the housing market will deteriorate –each time at a slower pace– through the rest of the year, and will not start to recover until the beginning of the next.
Durable Goods Orders (February, Wednesday 8:30 am)
F: 2.2% C: 1.0% P: -5.3%Durable goods orders are likely to bounce back in February after a sharp drop in the previous month. Durable goods orders flattened in the first two months of this year, anticipating disappointing readings of industrial output in the coming months. Non-defense capital goods orders excluding aircraft –a leading indicator of non-residential investment– declined 1.6% y-o-y on average during 2007. This trend continues and is likely to be exacerbated by tighter credit standards and declining corporate profits. As a result, we expect non-residential investment to soften in 2008.
Consumer Confidence (March, Tuesday 8:30)
F: 65 C: 75 P: 75We expect the Conference Board’s Index of Consumer Confidence to deteriorate in March, reflecting more pessimistic assessments on labor markets and the overall economy. In February, private nonfarm payroll declined by 101,000, the biggest lost in five years. We look for the Consumer Confidence Index to stand at 65 points, the lowest reading since April 2003.
Personal Income & Spending (February, Friday 8:30)
F: 0.3, 0.2% C: 0.3, 0.2% P: 0.3, 0.4%Private personal spending probably grew 0.2% in February, following a 0.4% gain in January. Deceleration was due to a decline in spending on goods, which was more than compensated by a sustained growth in services’ spending. In February, retail sales declined 0.6%, dragged down by a 1.9% decrease in auto sales. Moreover, retail sales excluding autos fell 0.2%. These readings suggest that spending on goods has diminished, in line with our prospects of sluggish economic growth in 2008. Finally, we expect personal income to expand by 0.3% in February, a rate similar to that of January, but slower than the average of 0.5% in 2007. Personal income will decelerate in coming months as labor market weakens.
S&P Case-Shiller Home Prices Index (January, Tuesday 9:00)
F: -11% C: -10.5% P: -9.1%Home prices will continue to fall as inventories remain at relatively high levels. Prices are decreasing on a national scale according to the S&P Case- Shiller Home Prices Index for 20 cities, which we expect to decline 11% yearover- year in January. Falling home prices will continue to erode households’ wealth, and thus consumer spending.
Published on Thu, Mar 20 2008, 16:09 GMT
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FOMC meeting's week
Fri, Mar 14 2008, 08:59 GMT
by Luis Arregoces
FOMC Policy Announcement (March 18, 14:15)
Fed Funds Forecast: 2.50% C: 2.50% P: 3.00%
The next FOMC meeting is scheduled for Tuesday, March 18th. Once again, the Board of Governors will face a bleak outlook, confirmed by the continuous release of deteriorating economic data. Since their last scheduled meeting in January 31st, the housing sector has shown no signs of recovery. Instead it has worsened further as evidenced by the continuing reduction of home prices (the recently released Case Schiller index of home prices fell 9.1% in December). Moreover, consumer spending, which constitutes two thirds of total demand, is yielding under the pressure. The latest signal is today’s report by the Commerce Department announcing that retail sales shrunk 0.6% m-o-m on February (compared to a low but still positive growth of 0.3% on January). On the labor market there are also some ominous signs. On March 7th, the BLS announced that private nonfarm payroll fell 101,000 jobs, the sharpest reduction in the past five years.
Inflationary pressures have remained contained, with expectations and core indices under control. But a weak US dollar, combined with record highs in gold and crude oil, are increasingly challenging. Although recent readings of core inflation are showing an incipient upsurge, the Fed has stressed their confidence that the economic slowdown will hamper inflationary pressures. Facing downside risks to growth on the one hand and contained inflation on the other, we expect the Fed to reduce its target rate 50 bp to 2.5%. We don’t expect a larger reduction because of three problems currently troubling the Fed: the realization that the effectiveness of traditional monetary policy is diminishing (as exposed by the non-traditional 200 billion dollar injection announced this week), the proximity to the psychological lower bound of 2%, and the inflationary impact of the ever-weakening value of the dollar with respect to other currencies.
Empire State & Philadelphia Indices (March, Monday & Thursday, 8:30 & 10:00 am respectively)
F: -13.0, -30.0 C: -5.0, -18.0 P: -11.7, -24.0
We expect the Empire State and Philladelphia indices to decrease further in March, suggesting a nation-wide deterioration of manufacturing output in the month. Currently, the Philly Fed Index is close to the levels of previous economic recessions. Industrial production seems to be suffering the effects of a slower demand. In fact, bussiness inventories increased significantly early in the first quarter. Higher inventories could lead firms to scale back production in the near term. This is in line with our prospect of slugghish economic growth in 2008.
Housing Starts & Building Permits (Feb, Tuesday 8:30 am)
F: 980, 1000K C: 995, 1020K P: 1012, 1061K
The outlook for residential investment remains dark. Housing construction continues its downward trend due to excessive supply. Problems in the housing market have intensified due to a significant deceleration of mortgages loans -a consequence of the current financial turmoil. We expect residential investment to contract around 20% in 2008.
Published on Fri, Mar 14 2008, 08:59 GMT
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We expect wholesale inventories to increase by 0.6 percent in January
Tue, Mar 11 2008, 06:13 GMT
by Luis Arregoces
Wholesale inventories (January, Monday, 9:00 am)
F: 0.6% C: 0.5% P: 1.10%
We expect wholesale inventories to increase by 0.6 percent in January, down from 1.1 percent in the previous month. Our current estimate is slightly above consensus estimate of 0.5 percent for the same month. Wholesale inventories have been growing at a faster pace since November 2007. In addition, our estimate is consistent with a lower than expected demand during January 2008.
Trade balance (January, Tuesday, 7:30 am)
F: -57.5 B C: -59.5 B P: -58.8 B
The ongoing correction in the trade balance has occurred at a lower pace than previously estimated. We expect the trade balance to improve a bit in January, gravitating at around -57 Billion, despite the dollar weakness. This estimate is in line with the current consensus estimate of -59.5 Billion for January 2008. In addition, we expect a more rapid adjustment in the second quarter of 2008, consistent with a scenario of further dollar depreciation.
Import price index (February, Thursday, 7:30 am)
F: 0.9% C: 0.7% P: 1.70%
We expect import prices to increase by 0.9 percent in February, down from 1.7 percent in January, on a month-tomonth basis. Our estimate is slightly above the consensus estimate of 0.7 percent. Last November the index had the largest monthly advance since October 1990, mostly due to high oil prices. The dollar weakness, combined with high oil prices, could potentially maintain the current upward trend in import prices in coming months.
Consumer price index (February, Friday, 7:30 am)
Headline F: 0.3% C: 0.3% P: 0.4% Core F: 0.2% C: 0.2% P: 0.3%
According to our preliminary forecast, we expect headline CPI and core CPI to rise by 0.3 and 0.2 percent respectively, month-over-month, on a seasonally adjusted basis. On a year over year basis, we expect headline CPI to increase by 4.2 percent and core CPI by 2.8 percent in December.
U. of Michigan confidence (March, Friday 9:00am)
F: 71.5 C: 71 P: 70.8
We expect the University of Michigan consumer confidence survey to increase a bit in February to 71.5, up from 70.8 in February. Despite high fuel prices, and a weak housing market consumers expectations should remain at a level similar to the previous month. Currently, we expect a significant moderation in its growth rate in coming quarters.
Published on Tue, Mar 11 2008, 06:13 GMT
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ISM Manufacturing index, Productivity, ISM non−Manufacturing, Employment Situation and Consumer Credit
Wed, Mar 5 2008, 08:58 GMT
by Luis Arregoces
ISM Manufacturing index (February, Monday, 9:00 am)
F: 49.5 C: 49.0 P: 50.7
We expect the ISM index to fall a bit below its current level in February, gravitating at around 49. This estimate is consistent with a deceleration in the pace of economic growth; however, it supports relatively healthy levels of manufacturing activity. Our current forecast of 49.5 is slightly above the consensus estimate for the manufacturing index in February.
Productivity (Fourth quarter 2007, Wednesday, 7:30 am)
F: 1.7% C: 1.8% P: 6.3%
We expect the final estimate for productivity growth rate in the fourth quarter of 2007 to be around 1.7 percent, down from 6.3 percent in the previous quarter. Our current estimate is consistent with lower output growth in the fourth quarter of last year. Productivity growth in the third quarter of 2007 represented the largest productivity gain since the third quarter of 2003. In addition, we expect a moderate growth rate for productivity in coming quarters.
ISM non-Manufacturing (February, Wednesday 9:00am)
F: 46.5 C: 48 P: 44.6
We expect the ISM non-manufacturing to rise a bit from its current level in February. Our current forecast for February is 46.5, slightly below the consensus estimate of 48.
Employment Situation (February, Friday 7:30 am)
F: 35K C: 40K P: -17K
We expect employment to increase from -17K in January to 35K in February, and the unemployment rate to increase from 4.9 to 5.0 percent. We expect health care, food services, and professional and technical services to continue adding jobs to the economy at a lower pace compared to the previous months. Our current forecast is a bit lower than the consensus estimate of 40K for February.
Consumer Credit (January, Friday, 2:00 pm)
F: 7.5 B C: 7.6 B P: 4.5 B
We expect consumer credit to continue growing at a moderate pace in January, reaching 7.5 billion. This estimate is slightly higher than the previous month, when consumer credit increased by 4.5 billion. Our current estimate is a bit lower than the consensus estimate for January and significantly below the average of 9.1 billion for 2007.
Published on Wed, Mar 5 2008, 08:58 GMT
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Existing home sales, Producer price index, Richmond Fed Manuf. index, Durable goods orders, New home sales
Tue, Feb 26 2008, 16:21 GMT
by Luis Arregoces
Existing home sales (January, Monday 7:30 am)
F: -1.1% C: -1.8% P: -2.2%
We expect existing home sales to fall to around 4.2 million or 1.1 percent in January, down from our previous January estimate of 4.5 million. This new estimate represents a decrease of 25 percent from the approximately 6.44 million sold in January 2007. We expect existing home sales to remain at record low levels as the housing market continues adjusting.
Producer price index (January, Tuesday, 7:30 am)
F: 0.2% C: 0.3% P: -0.1%
We expect core PPI to continue growing at a moderate rate in January. On a month over month basis, we expect PPI to increase by 0.2 percent, following a 0.1 percent decline in the previous month.
Richmond Fed Manuf. index (February, Tuesday, 9:00 am)
F: -9 C: -5 P: -8
We expect the index for overall activity to fall even further in February, remaining in negative territory. Our forecast for the index is negative nine in February, down from negative eight in the previous month; this negative change is mostly due to the decrease in shipments and new orders. In addition, this less upbeat estimate is based, mostly, on lower expectations about business activity in the next six months.
Durable goods orders (January, Wednesday, 7:30 am)
F: -2.0% C: -4.0% P: 5.0%
In December durable goods orders increased by 5.0 percent, after the latest revision, following a decrease of 1.0 percent in November. Currently, we expect a contraction of 2 percent, more upbeat than the consensus estimate; this estimate is consistent with an expected reduction in business spending. In addition, the current outlook for durable goods orders could be affected by the downward trend in corporate profits.
New home sales (January, Wednesday, 9:00 am)
F: 595 K C: 600 K P: 604 K
We expect new home sales to fall to 595 K during the first month of 2008, down from our previous estimate of 605 K. This new estimate represents a decrease of 37 percent from the approximately 1 million sold during 2006. Our current annualized rate forecast for January is 1.4 percent less than December 2007, slightly lower than the current consensus estimate of 600 K.
Published on Tue, Feb 26 2008, 16:21 GMT
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Housing Market Index, Consumer price index, Housing Starts, FOMC Minutes, Leading Indicators
Mon, Feb 18 2008, 08:48 GMT
by Luis Arregoces
Housing Market Index (February, Tuesday, 12:00 pm)
F: 19 C: 19 P: 19
We expect confidence among U.S. homebuilders to remain at record low levels. Our current forecast of 19 is in line with the consensus estimate, which expects most respondents to continue viewing conditions as poor. Declining prices, higher mortgage rates and loan restrictions continue to keep buyers away from the market. The National Association of Home Builders (NAHB) index of builder sentiment fell to 18 in September, down from 20 in August and it has been at 19 for the last three months.
Consumer price index (January, Wednesday, 7:30 am)
Headline - F: 0.3% C: 0.3% P: 0.3%
Core - F: 0.2% C: 0.2% P: 0.2%
According to our preliminary forecast, we expect headline CPI and core CPI to rise by 0.3 and 0.2 percent respectively, month-over-month, on a seasonally adjusted basis. On a year over year basis, we expect headline CPI to increase by 4.0 percent and core CPI by 2.4 percent in December.
Housing Starts (January, Wednesday, 7:30 am)
F: 950 K C: 1006 K P: 1006 K
The contraction in the housing sector is going to be deeper and more prolonged than many analysts previously expected. The tightening in credit markets continues and we believe that it will contribute to maintain housing starts at record low levels in December. Our current forecast of 950 K for January is slightly below the consensus estimate.
FOMC Minutes (January, Wednesday, 1:00 pm)
Please refer to BBVA Fedwatch (2/14/2008).
Leading Indicators (January, Thursday 9:00 am)
F: -0.1% C: -0.1% P: -0.2%
We expect the index of leading U.S. economic indicators to fall a bit by 0.1 percent in January. This reading is consistent with the poor performance of equity markets and the worsening of the overall short-term economic outlook. The Conference Board index could remain at low levels in coming months as the economy grows at a lower pace. Our current forecast is in line with the consensus estimate, which indicates that the index could fall by as much as 0.1 percent in January.
Published on Mon, Feb 18 2008, 08:48 GMT
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ISM non−Manufacturing, Productivity, Consumer Credit and Wholesale inventories
Mon, Feb 4 2008, 16:41 GMT
by Luis Arregoces
ISM non-Manufacturing (January, Tuesday 10:00am)
F: 53.5 C: N/A P: 53.9
We expect the ISM non-manufacturing index to maintain its current level in January, at around 53, with a tilt towards the downside due to the ongoing deceleration in economic activity. The index fell to 53.9 in December, down from the November reading of 54.1, consistent with a deceleration trend. Our current forecast for January is 53.5, slightly below the previous reading of 53.9.
Productivity (Fourth quarter, Wednesday, 8:30 am)
F: 1.2% C: N/A P: 6.3%
We expect the preliminary estimate for productivity growth rate in the fourth quarter of 2007 to be around 1.2 percent, down from 6.3 percent in the previous quarter. Our estimate is significantly lower than the third quarter growth rate mainly due to lower output growth in the fourth quarter of last year. Productivity growth in the third quarter of 2007 represented the largest productivity gain since the third quarter of 2003; we currently expect a significant moderation in its growth rate in coming quarters.
Consumer Credit (December, Thursday, 3:00 pm)
F: 7.5 B C: N/A P: 15.4 B
We expect consumer credit to continue growing at a moderate pace in January, reaching 7.5 billion. This estimate is significantly lower than the previous month, when consumer credit surprised on the upside growing more than expected reaching 15.4B. Our current estimate is significantly below the average of 9.1 billion for the first ten months of 2007.
Wholesale inventories (December, Friday, 9:00 am)
F: 0.3% C: 0.4% P: 0.6%
We expect wholesale inventories to increase by 0.3 percent in December, down from 0.6 percent in the previous month. Our current estimate is slightly below consensus estimate of 0.4 percent for the same month. Wholesale inventories did not grow in October but re-bounced in November. This estimate is consistent with a lower than expected demand during December 2007
Published on Mon, Feb 4 2008, 16:41 GMT
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New home sales, Durable goods orders, Consumer confidence, FOMC rate decision and Employment Situation
Tue, Jan 29 2008, 09:14 GMT
by Luis Arregoces
New home sales (December, Monday 9:00 am)
F: 630 K C: 648 K P: 647 K
We expect new home sales to fall to 630 K during 2007, down from our previous November estimate of 730 K. This new estimate represents a decrease of 34 percent from the approximately 1 million sold during 2006.
Our current annualized rate forecast for December is 630 K, or 2.6 percent less than November, slightly lower than the current consensus estimate of 648 K.
Durable goods orders (December, Tuesday, 7:30 am)
F: 1.0% C: 1.5% P: -0.1%
In November durable goods orders retreated by 0.1 percent, following a decrease of 0.4 percent in October. In our view, this contraction is due to a reduction in business spending. In addition, the current outlook for durable goods orders could be affected by the downward trend in corporate profits. We expect the recent financial turmoil to continue dampening the growth of this indicator.
Overall, we expect durable goods orders to increase by 1.0 percent in December.
Consumer confidence (January, Tuesday, 9:00 am)
F: 86.0 C: 87.0 P: 88.6
We expect consumer confidence to decrease a bit in January to 86.0, down from 88.6 in December. This indicator has been losing groun