The Week Ahead in US Economics December 12-16, 2011

Transcription

1 The Week Ahead in US Economics December 12-16, 2011 Monday Tuesday Wednesday Thursday Friday 12 Trade Budget (Nov) (14:00) 13 NFIB Index (Nov) (07:30) Retail Sales (Nov) (08:30) Business Inventories (Oct) (10:00) IBD/TIPP Economic Optimism (Dec) (10:00) 14 Import Prices (Nov) (08:30) 15 Current Account (Q3) (08:30) Initial Claims (12/10) (08:30) PPI (Nov) (08:30) Empire State Survey (Dec) (08:30) Treasury Int l Cap Flows (Oct) (09:00) Industrial Production (Nov) (09:15) Philly Fed Survey (Dec) (10:00) 16 CPI (Nov) (08:30) Treasury announces 4-week bills (e: $35 bln) (11:00) $29 bln 3- and $27 bln 6-month bills (11:30) $32 bln 3-year notes (13:00) FOMC statement (14:15) all times are ET; FOMC voters in bold 4-week and $25 bln 1-year bills (11:30) $21 bln 10-year notes (13:00) FRB Atlanta's Lockhart at Midtown Alliance Annual Mtg. (08:30) $13 bln 30-year bonds (13:00) Freddie Mac Reference note announcement FRB Atlanta's Lockhart commencement speech; Andrew Young School (15:20) Treasury announces 3- and 6- month bills (e: $29/27 bln) (11:00) Treasury announces 2- and 5- and 7-year notes (e:$35/35/29 bln) (11:00) $12 bln 5-year TIPS (13:00) FRB Chicago's Evans on econometric tools for policy making (11:15) FRB Dallas's Fisher on the outlook (12:00) Bottom Line The week of December 5-9 was dominated by headlines out of Europe, with a Brussels summit reaching a deal that would, if ratified, bring a degree of further fiscal integration -- though without the UK, the lone country to not sign on. The ECB lowered its headline interest rate 25 basis points, but ECB President Mario Draghi threw cold water on talk that the central bank would expand its bond-buying operation. It was a light week for U.S. data, but it was positive on the whole. October wholesale sales and inventories were both surprisingly strong, helping boost Q4 GDP forecasts. The trade deficit shrank a bit, though with upward revisions to prior months. Initial claims plunged to a ninemonth low on volatile post-holiday seasonal, and and the Reuters / University of Michigan sentiment survey saw a better than expected, if still modest, gain.

2 On the not so positive side, October factory orders saw a 0.4% dip, while the ISM Non- Manufacturing Index dropped slightly. That was due to a sharp drop in the employment index, however, which contradicted Friday's BLS numbers, while the new orders and production indices rose. The new week will see considerably more data, including what should be moderate inflation figures and strong retail sales. Industrial production should be the weak spot, hit in part by supply chain constraints from flooding in Thailand. But we'll also get the first manufacturing surveys for December, which should show a bit of a rebound. Tuesday's one-day FOMC meeting should produce a fairly sedate statement. While possibly another round of QE and changes to the Fed's communication policy are expected down the line, they will likely keep most of their powder dry heading into the new year. The Fed will make an outright TIPS purchase on Monday, followed by purchases of longerdated Treasury coupons on Thursday and twice on Friday. They will sell shorter-dated coupons on Wednesday. In addition to the usual weekly bill cycle, Treasury will auction $32 bln 3-year notes Monday, $21 bln 10-year notes and $25 bln 1- year bills Tuesday, $13 bln 30-year notes Wednesday, and $12 bln 5-year TIPS Thursday. Treasury will also announce 2-, 5- and 7-year notes Thursday (e: $35/35/29 bln), while Freddie Mac will make a reference note announcement Wednesday. IFR Commentary Treasury Budget (Nov) (Mon) The CBO monthly review, normally fairly accurate, projects a budget deficit of $139 bln, down from $150.4 bln in November There do not appear to be many major calendar distortions this month, in contrast to October when around $30 bln of a $ 42 bln yr/yr decline in the deficit was attributed to calendar effects. The underlying narrowing of the deficit in October looks similar to the projected $11.4 bln improvement in November. Whether this continues for the rest of the fiscal year which ends in September 2012 will depend on policy choices still being debated. The CBO projections for November imply a rise in receipts of 2.7% yr/yr, much slower than October s 11.7%, suggesting that the economy remains subdued with October s revenue gain being above trend. Outlays are seen down by 2.5% yr/yr, compared to -8.7% in October when receipts would have risen by around 2% without calendar distortions. The November fall in outlays will be led by Medicaid, unemployment benefits and defense. Spending is now seeing some restraint. /ds Retail Sales (Nov) (Tue) November retail sales should see a 0.6% increase, with a rise of 0.4% ex autos and 0.3% ex autos and gasoline. Auto sales continued to improve in November, reaching their highest of the year to date confirming that the posttsunami disruptions are now largely over. Gasoline prices should also have a marginal positive impact. Chain store sales data disappointed, with ICSC reporting a 3.2% yr/yr rise, the weakest since March which was distorted by the timing of Easter. We suspect that the chain store calendar pushed the final few days of November into its December estimates is part of the reason for the slowing, particularly with weekly chain store reports having implied a stronger outcome. The retail sales report will measure the entire month while adjusting for the timing of holidays. However, sales ex autos and gasoline may see something of a pause after a 0.7% October increase, which was the strongest since March. /ds

3 Business Inventories (Oct) (Tue) Business inventories likely rose 1.1% in October, rebounding strongly after a flat reading in September. With solid increases already having been reported in the wholesale sector (+1.6%) and the factory sector (+0.9%), we expect that the final ingredient, retail inventories, will also surge, around 0.8%. Retail inventories were the worst performer in September, dipping 0.1%, their first negative since February. Assuming no significant revision to the sales figures, overall sales will be up 0.7%, with +0.6% contributions from the manufacturing and retail sectors and a 0.9% boost from wholesale. That would keep the overall inventory/sales ratio steady at 1.27, just slightly lower than the prerecession average, suggesting marginal room for inventory rebuilding. Still, inventories look to be a solid boost to Q4 GDP. They were a drag of over 1.5 percentage points in current Q3 figures, and should switch to a positive in Q4, even if the October pace of inventory growth cools. /tml FOMC Statement (Tue) We don't expect to see much action in the final FOMC statement of the 2011 voting class. While there has been much talk of an MBS-focused QE3 lately, we expect that Bernanke & Co. will want to keep their powder dry, waiting for more shoes to drop in Europe and/or for data to turn down in the United States. In any case, they would surely like to wait for a two-day meeting, giving the Committee a longer discussion period and Bernanke the chance to explain the move in a post-statement press conference. There has also been discussion of altering the Fed's communications strategy, but the members appear to have been unable to come to much consensus here. While we would not be entirely shocked to see an adjustment made, we would likely have gotten some more coherent signals from Fed speakers first will likely prove more receptive to dovish policy moves in any case. In part this is due to the fact that Q4 strength seems likely to fade as consumers run out of steam and some level of austerity comes into play, and in part because a more dovish slate of Fed Presidents is rotating into voting membership. While the very dovish Charles Evans will no longer get a vote, neither will the quite hawkish Charles Plosser and Richard Fisher. Minneapolis's Kocherlakota's hawkish leaning duties will be taken up by Richmond's Lacker and the somewhat more moderate Atlanta President Lockhart. The other two new presidents, Cleveland's Pianalto and San Francisco's Williams, are doves. Import Prices (Nov) (Wed) November import prices should see a 0.5% increase to follow a 0.6% decline seen in October. October s decline was led by fuels, both petroleum and natural gas being significant, with the ex fuels figure down by 0.2% and the ex petroleum down by 0.4%. Fuel prices, particularly petroleum, should see some rebound in November. October also saw a decline, of 0.2%, in the ex fuels series, and that was the first decline ex fuels since June and July 2010 saw 2 straight declines. Those declines came in a lagged response to a pick up in the value of the USD in response to European debt concerns, and October s ex fuels decline looks like a response to a stronger USD in September. That the USD gave back some of its September gains in October suggests November ex fuels prices will

4 not match the October decline. Our forecast is unchanged, with a 0.1% rise ex petroleum. October s data was also notable for a sharp 2.1% fall in export prices, which should be at least partially reversed in November. /ds Initial Claims (12/10) (Thu) Assisted down to the second lowest reading of the year by a large seasonal factor, initial claims may just hold around 383,000 in the week ending December 10. It is too early to tell if consumption activity will make this season less dire than forecasted, but a second ample decline seems unlikely. Having just slid 23k to 381k, the argument that claims should correct upwards is also valid, but history does not provide much clarification. Besides, we're in a unique recovery from inimitable job losses, the past can only help so much. Continuing claims should rise to 3.62 mln in the week ending December 3 after having just sunk 174k to 3.58mln. /vn Current Account (Q3) (Thu) The Q3 current account deficit should see a substantial decline, to $105.3 bln from $118.0 bln, or to 2.8% of GDP from 3.1%. The deficit would be the smallest since Q We already know that the Q3 trade deficit in goods and services totaled $135.6 bln, an improvement from $146.2 bln (originally reported as $145.0 bln) in Q2. Still to be released are the balances on income and unilateral current transfers, but clues as to the direction can be obtained from the Fed s flow of funds report. The investment income looks set to increase, to $63.5 bln from $61.1 bln, and the unilateral transfers deficit looks set to fall, to $33.2 bln from $34.2 bln, both adding to the narrowing of the overall current account deficit. /ds PPI (Nov) (Thu) The November PPI should increase by 0.2% both overall and in the core rate ex food and energy. Gasoline prices, while likely to slip further in the CPI, should edge higher at the producer level, though energy prices elsewhere should be subdued, keeping the overall energy price gain to a modest 0.7%. Food prices should slip by 0.3%, following declines in crude and intermediate food prices in October, and ensure overall PPI does not quite move ahead of the core. This will be the first decline in finished goods PPI food prices since May. A 0.2% core rate ex food and energy would mark a return to trend after a flat October, that was kept below trend by a decline in auto prices. Weakness in auto prices (a consequence of seasonal adjustments for the new model year) has depressed core PPI in the last 3 Octobers and is unlikely to be repeated in November. The yr/yr PPI should slip to 5.7% from 5.9% but the yr/yr

5 core should rise to 3.0% from 2.8%, reaching its highest since June Crude and intermediate PPI were very soft in October, even excluding food and energy, and modest corrections higher are likely in these indices. /ds Empire State Mfg Survey (Dec) (Thu) The New York Fed's Empire State Manufacturing Survey will probably see a bit of improvement in its December reading, rising from a very weak 0.61 to about November's was the first positive reading (and just barely) in six months, but the forward-looking new orders index dropped back into negatives. The future activity index, however, jumped over 32 points to , another six-month high, indicating that manufacturers are expecting conditions to improve. The internals were not particularly good in November, with drops in the new orders, inventories, and employment indices. Five months of inventory contraction should help spur orders and production in the near future, if we don't see it this month. The New York Fed's measure has lagged other manufacturing surveys by just a bit over the last couple of months, and we suspect it will do so again. Other regions should benefit more from a pickup in auto assemblies. /tml Industrial Production (Nov) (Thu) We estimate that industrial production in November probably put in its worst performance since the end of the recession, dropping 0.5%. Flooding in Thailand appears to have had an impact on the automotive supply chain, though this should overall be considerably less severe and shorter in duration than the tsunami in Japan earlier in the year. Hours worked data from the BLS employment report indicate that activity was modestly reduced in manufacturing and in natural resource production. Very mild weather likely also restrained utility output. We look for manufacturing, utilities, and mining to see output dips of roughly 0.5%, 0.5%, and 0.4% respectively. If accurate, and assuming little revision to the prior month's figure, capacity utilization would come down from 77.8% to about 77.3%, reversing its entire October gain. Utilization appears to have moved little from where it was at the beginning of the year, having settled in well below the long-run average of about 80.5%. That should indicate that there remains plenty of room to expand output without increasing inflation pressure. /tml

6 Philly Fed Survey (Dec) (Thu) The Philly Fed's Business Outlook Survey should rise from +3.6 to +6.0, as we have little reason to suspect drastic change from last month's somewhat mixed reading. Last month the new orders index dropped from +7.8 to +1.3, but manufacturers grew more optimistic about the future, with the future activity index rising from to its highest since February. Though a reading of +6.0 would not indicate particularly speedy growth, it would be the third consecutive positive reading after the Philly Fed's headline collapsed to in August, marking an impressive turnaround. We expect that the Philadelphia Fed reading will come in at about the middle of the pack of manufacturing surveys again this month. /tml CPI (Nov) (Fri) The November CPI should see increases of 0.1% both overall and in the core rate ex food and energy. The net impact of food and energy should be a negative though not quite enough to get the overall number rounded down to zero, particularly if the core is a little firmer than 0.1% before rounding. Gasoline saw a modest price decline in November and should lead a 0.5% fall in energy prices, but food with a 0.2% rise should be a little firmer than October s 0.1%, which was the softest of the year to date and exaggerated by a sharp fall in fruit and vegetables. We project a third straight 0.1% increase in the core, a pace that had been exceeded in every month from January to August in The correction in auto prices from past supply shortages should have further to run, and apparel, recently volatile, may dip if mild weather reduces demand for winter goods. Medical care was above trend at +0.5% in October and we do not expect that to be repeated. Overall the core rate should be soft, though a recent moderate uptrend in housing may persist, particularly if lodging away from home, a volatile sector, corrects from recent weakness. The yr/yr CPI may dip a touch but should continue to round at 3.5%, while the yr/yr core should be unchanged at 2.1%, with an earlier acceleration of trend showing signs of stabilization near where the Fed would like. /ds Theodore.Littleton@thomsonreuters.com (617) Vimombi.Nshom@thomsonreuters.com (202) David.H.Sloan@thomsonreuters.com (202)

7 Week Ahead Calendar: Date ET Release Unit Period IFR Est Prev Median Range 12-Dec 14:00 Treasury Budget $bln Nov Dec 07:30 NFIB Index Idx Nov Dec 08:30 Retail Sales %m/m Nov Dec 08:30 Retail Sales ex-autos %m/m Nov Dec 10:00 JOLTS (Job Openings) % Oct Dec 10:00 Business Inventories %m/m Oct Dec 10:00 IDB/TIPP Economic Optimism Idx Dec Dec 12:30 Fed Funds Rate % Dec 08:30 Import Prices %m/m Nov Dec 08:30 Current Account Decifict $bln Q Dec 08:30 Initial Claims k 12/ Dec 08:30 Continuing Claims k 12/ Dec 08:30 PPI %m/m Nov Dec 08:30 PPI YOY %y/y Nov Dec 08:30 Core PPI %m/m Nov Dec 08:30 Core PPI YOY %y/y Nov Dec 08:30 Empire State Mfg Survey Idx Dec Dec 09:00 Treasury Int l Cap Flows Oct Dec 09:15 Capacity Utilization % Nov Dec 09:15 Industrial Production %m/m Nov Dec 10:00 Philly Fed Survey Idx Dec Dec 08:30 CPI %m/m Nov Dec 08:30 CPI YOY %y/y Nov Dec 08:30 Core CPI %m/m Nov Dec 08:30 Core CPI YOY %y/y Nov Consensus (median) forecasts supplied by Reuters News. On the Horizon: Date ET Release Unit Period IFR Est Prev Median Range 19-Dec 10:00 NAHB Index Idx Dec Dec 08:30 Housing Starts k,ar Nov Dec 08:30 Building Permits k,ar Nov Dec 10:00 Existing Home Sales k Nov Dec 08:30 CFNAI Idx Nov Dec 08:30 GDP (Final) %,AR Q Dec 08:30 Core PCE Deflator (Final) %,AR Q Dec 08:30 GDP Final Sales (Final) %,AR Q Dec 08:30 Initial Claims k 12/17 n/a 22-Dec 08:30 Continuing Claims k 12/10 n/a 22-Nov 09:55 Michigan Sentiment (Final) Idx Dec Nov 09:55 Current Conditions (Final) Idx Dec Dec 09:55 Expectations (Final) Idx Dec 61.1

8 On the Horizon continued: Date ET Release Unit Period IFR Est Prev Median Range 22-Dec 10:00 FHFA House Price Index %y/y Oct Dec 10:00 Leading Indicators %m/m Nov Dec 08:30 Durable Goods %m/m Nov Dec 08:30 Durable Goods ex-trans %m/m Nov Dec 08:30 Nondef Capex Ex-Air %m/m Nov Dec 08:30 Personal Income %m/m Nov Dec 08:30 Consumption (PCE) %m/m Nov Dec 08:30 Core PCE Deflator %m/m Nov Dec 08:30 Core PCE Deflator %y/y Nov Dec 08:30 New Home Sales k,ar Nov Consensus (median) forecasts supplied by Reuters News. Review of the December 5-9 Week Date Release Unit Period Actual Rev Previous Median Range 05 Dec Factory Orders %m/m Oct Dec Factory Orders ex-trans %m/m Oct Dec ISM Non-Mfg Index Idx Nov Dec CB Employment Trend Idx %m/m Nov Dec Consumer Credit $bln Oct Dec Initial Claims k 12/ Dec Continuing Claims k 11/ Dec Wholesale Inventories %m/m Oct Dec Wholesale Sales %m/m Oct Dec International Trade $bln Oct Dec Michigan Sentiment (Prelim) Idx Dec Dec Current Conditions (Prelim) Idx Dec Dec Expectations (Prelim) Idx Dec Consensus (median) forecasts supplied by Reuters News.

9 Treasury Financing Calendar Security Type Amount Announcement Auction Settlement 13-Week BILL $29B 08-Dec 12-Dec 15-Dec 26-Week BILL $27B 08-Dec 12-Dec 15-Dec 3-Year NOTE $32B 08-Dec 12-Dec 15-Dec 52-Week BILL $25B 08-Dec 13-Dec 15-Dec 10-Year NOTE $21B 08-Dec 13-Dec 15-Dec 30-Year BOND $13B 08-Dec 14-Dec 15-Dec 5-Year R TIPS $12B 08-Dec 15-Dec 30-Dec 4-Week BILL e:$35b 12-Dec 13-Dec 15-Dec 13-Week BILL e:$29b 15-Dec 19-Dec 22-Dec 26-Week BILL e:$27b 15-Dec 19-Dec 22-Dec 2-Year NOTE e:$35b 15-Dec 19-Dec 03-Jan 5-Year NOTE e:$35b 15-Dec 20-Dec 03-Jan 7-Year NOTE e:$29b 15-Dec 21-Dec 03-Jan R denotes reopening Federal Reserve Purchase Schedule Operation Date Settlement Date Operation Type Maturity Range Expected Purchase Size 12-Dec 13-Dec Outright TIPS purchase 01/15/ /15/2041 $ bln 14-Dec 15-Dec Outright Treasury coupon sale 10/15/ /31/2013 $ bln 15-Dec 16-Dec Outright Treasury coupon purchase 12/31/ /15/2019 $ bln 16-Dec 19-Dec Outright Treasury coupon purchase 02/15/ /15/2041 $ bln 16-Dec 19-Dec Outright Treasury coupon purchase 02/15/ /15/2021 $ bln