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The Week Ahead

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Housing Starts & Building Permits, FOMC Policy Announcement, Leading Economic Indicators Index, Existing Home Sales

Tue, Mar 20 2007, 10:27 GMT
by Marcial Nava

BBVA Bancomer

Housing Starts & Building Permits (February, Tuesday 8.30 am)

Forecast: 1390K, 1562K Consensus: 1450K, 1560K Prior: 1408K, 1571K

Residential construction could have worsened in February, largely affected by unusually colder temperatures. We expect housing starts to decline 1.3% in February to a seasonally adjusted annual rate of 1390K units -the lowest in ten years- 34.8% below the rate of a year earlier. Starts will continue falling as builders work down their inventories and housing demand stabilizes. Permits issuance likely decreased by 0.4% to a seasonally adjusted annual rate of 1562K. This is 27.3% lower than the rate of a year earlier.

FOMC Policy Announcement (Wednesday, 2.15 pm)

Fed Funds Forecast: 5.25% Consensus: 5.25% Prior: 5.25%

In general, economic data during the inter-meeting period came weaker than expected suggesting that, although consumer spending and employment remains reasonably robust, there are downward risks to activity growth. On the prices side, readings were consistent with our prospect of a gradual decline in core inflation. Nevertheless, the labor market is still tight while pressures from shelter continue. Finally, recent communication suggests that the Fed is still focused on inflationary risks, which remain as the predominant concern for Fed officials. Consequently, we do not expect any changes to the wording of the statement’s monetary policy paragraph.

Leading Economic Indicators Index (Feb., Thursday 10.00 am)

Forecast: -0.3% Consensus: -0.5% Prior: 0.1%

According to activity indicators, economic conditions worsened in February. We expect the Conference Board’s Leading Economic Indicators Index to fell 0.3% following two consecutive months of gains. The decrease was led by negative contributions from higher unemployment insurance claims (inverted), a decrease in consumer expectations, lower vendor performance, falling building permits, and a wider negative interest rate spread. These developments were partially offset by stocks gains and an expected recovery in manufacturers’ new orders. On a year-over-year basis the LEI Index probably increased 0.1% in February after falling by the same rate in the previous month.

Existing Home Sales (February, Friday 10.00 am)

Forecast: 6.30M Consensus: 6.35M Prior: 6.46M

Sales of existing homes (85% of total home sales) probably fell 2.5% to a seasonally adjusted annual rate of 6.30 million units in February from 6.46 million units in January. This will take the underlying trend to 6.30 million units, virtually the same as in the past three months. Sales’ trend (approximated by the six-month moving average) suggests that housing demand may have stabilized. This is mostly the result of falling prices, which have decreased at an average year-over-year rate of 1.4% over the last six months.

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Published on  Tue, Mar 20 2007, 10:32 GMT