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The Week Ahead

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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

BBVA Bancomer

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.

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Published on  Mon, May 19 2008, 12:50 GMT