Key US events before Christmas break - Nomura

Analysts at Nomura offered the key data for the US coming up ahead of the holiday.

Key Quotes:

"The week of 19 December Existing home sales (Wednesday): 

Home sales increased by 2.0% m-o-m to an annualized 5600k in October. However, existing home sales may have slowed in November considering incoming data. The latest pending home sales data, which tend to lead existing home sales, increased only marginally by 0.1% in October. Although mortgage loan application for home purchases improved in November, this may not be enough to translate into strong home sales. Therefore, we forecast a decline in existing home sales by 0.9 to an annualized rate of 5550k in November. 

Durable goods orders (Thursday): 

Durable goods orders have picked up in recent months, increasing notably by 4.6% in October. However, incoming data suggest this increase may be short lived. Transportation orders are expected to have fallen sharply in November, driven by a sharp decline in nondefense aircrafts and parts orders, which tend to be highly volatile. Incorporating this fluctuation, we forecast a 3.8% m-o-m decline in total durable goods in December. As for orders excluding transportation, incoming data were marginally positive. According to the latest industrial production report, the production of durable goods excluding transportation increased only by 0.1%. Therefore, we forecast a 0.1% decline in durable goods orders excluding transportation in December. Initial jobless claims (Thursday): Initial jobless claims have been on a downtrend for a while despite slight volatility around the holidays. We expect jobless claims to remain steady in the near term as the labor market continues to tighten. Yet, any sustained increase would be noteworthy.

Q3 GDP, third estimate (Thursday): 

Since the second estimate, data have been more favorable for Q3 growth. Construction spending in August and September were revised higher. In particular, private nonresidential construction spending was revised up, which suggests more business investment on structures. Moreover, public construction spending was also revised up, implying more government expenditures in Q3. Elsewhere, inventory data were somewhat more favorable for inventory investment. In sum, we think the BEA will revise up Q3 GDP to 3.4% from 3.2%, previously. Personal income and spending (Thursday): Personal income improved notably in October by 0.6% m-o-m, following a modest 0.4% increase. We expect personal income to have grown steadily by 0.3% m-o-m in November, as total aggregate weekly earnings increased moderately from the prior month. As for spending, we expect only a mild increase of 0.2% m-o-m in November. Incoming data suggest retail sales were weaker than expected in November, in which they grew by only 0.1%. Spending on durable goods likely slowed as sales of durable goods fell modestly, driven by a modest decline in autos and auto parts sales. Nondurable goods spending likely fell slightly as nondurable goods sales were lukewarm. On service spending, we expect trend-like gains. 

PCE deflator (Thursday): 

The relevant elements from the November PPI and CPI reports point to a slowdown in core PCE inflation from the previous month. Core CPI goods prices, most of which are inputs for core PCE price index, declined sharply in the month. The weakness in CPI’s food-away-from-home prices, which is used for estimating food service prices of core PCE price index, is expected to have a negative impact on core PCE inflation. Among PPI components, hospital and physician service prices increased but not strongly enough to push up core PCE inflation materially. Taking these components into account, we expect core PCE index to have increased only by 0.1% (0.062%) m-o-m in November, which would keep the y-o-y change rate at 1.7%. On non-core items, based on the November CPI report, food prices for the PCE price index likely declined slightly over the month and energy prices likely grew modestly by 1.3% m-o-m. We forecast headline PCE inflation increased by 0.1% m-o-m (1.4% y-o-y). We continue to expect only a gradual increase in core PCE inflation although the balance of risk to our PCE inflation outlook is tilted to the upside. Aggressive fiscal policies proposed by the Trump administration have a potential to tighten labor markets further and accelerate wage inflation. Dialing back cost control provisions in the Affordable Care Act or other laws enacted during the Obama administration may have additional implications on inflation. Separately, increased import tariffs may push up import prices. As for downside risks, further tightening financial conditions in reaction to an overheated economy boosted by expansionary fiscal policy may somewhat offset inflationary pressure. In addition, increasing supply of multi-family homes in major metropolitan areas could slow rent inflation. 

New home sales (Friday): 

New home sales dropped 1.9% m-o-m to an annualized 563k in October as sales activity slowed across the regions besides the West. However, the momentum in the housing market appears to have improved in November. The subindexes for current and future single family sales from the NAHB housing market survey were both elevated in November, suggesting that home builders saw healthy demand in the housing market. In addition, mortgage applications for home purchases improved 2.4% in November. Therefore, we forecast a 3.0% m-o-m increase in November to an annual rate of 580k.

University of Michigan consumer sentiment (Friday): 

In the preliminary estimate, this index registered 98.0 in December, an increase of 4.2 points from November’s reading. It appears that consumers continued to remain optimistic about the economic outlook. However, given the significant amount of uncertainty regarding potential policy changes, it is difficult to know how long this sentiment may last. As for inflation expectations, the median of consumers’ 5- to 10-year inflation expectations has remained relatively steady. We will keep an eye out for any sustained deviation from the current trend in upcoming reports."