The Week Ahead in US Economics January 10 14, 2010

Transcription

1 The Week Ahead in US Economics January 10 14, 2010 Monday Tuesday Wednesday Thursday Friday NFIB Index Import Prices Initial Claims CPI (Dec) (07:00) (Dec) (08:30) (01/08) (08:30) (Dec) (08:30) IBD/TIPP Economic Treasury Statement International Trade Retail Sales Optimism (Dec) (14:00) (Nov) (08:30) (Dec) (08:30) (Jan) (10:00) PPI Industrial Production JOLTS Survey (Dec) (08:30) (Dec) (09:15) (Nov) (10:00) MAPI/Manufacturers' Michigan Sentiment Wholesale Trade Alliance Quarterly (pjan) (09:55) (Nov) (10:00) Business Outlook Business Inventories Survey (08:30) (Nov) (10:00) Fed conducts outright Treasury coupon purchase (02/15/18-11/15/20) (e: $7-9 bln) (10:15) FRB Atlanta's Lockhart on the economy (12:40) FRB Philadelphia's Plosser on the economic outlook (08:30) Fed conducts outright Treasury coupon purchase (07/31/16-12/31/17) (e: $7-9 bln) (10:15) FRB Minneapolis's Kocherlakota at econ forecast luncheon (14:00) FRB Dallas's Fisher on limits of monetary policy (13:00) Beige Book (14:00) NY Fed releases outright Treasury/ TIPS purchase schedule (e: $105 bln) (14:00) FRB Richmond's Lacker on the economic outlook (12:45) FRB Boston's Rosengren at N.E. Mortgage Expo event (13:15) Treasury announces 4-week bills (e: $25 bln) (11:00) $29 bln 3- and $28 bln 6-month bills (11:30) all times are ET; FOMC voters in bold 4-week bills (e: $25 bln) and $22 bln 52- week bills (11:30) $32 bln 3-year notes (13:00) $21 bln 10-year notes (13:00) Fannie Mae note announcement Treasury announces 3- and 6- month bills (e: $57 bln) (11:00) Treasury announces 10-year TIPS (e: $12 bln) (11:00) $13 bln 30-year bonds (13:00) Bottom Line The first week of the new year had plenty of drama, with strong auto sales and a record ADP gain countered by a weaker-than-expected December employment report, more modest December chain store sales, and a jump back over 400k in initial claims. We did see the unemployment rate come down from 9.8% to 9.4%, but that was due almost as much to people leaving the labor force as them finding employment. The new week will be packed with interesting data. While Monday features no major releases, Tuesday will see the December NFIB Small Business Optimism Index, the January IBD/TIPP Economic Optimism Index, the November JOLTS survey, and November wholesale inventories (e:

2 +1.0%) and wholesale sales (e: +1.5%). Wednesday brings import prices (e: +1.2%) and the Treasury budget statement (e: -$85.0 bln). Thursday will see initial claims (e: 404k) at its most accommodative seasonal adjustment factor of the year, as well as figures for November international trade (e: -$41.0 bln) and December producer prices (e: +0.8%, +0.2% core). Finally, Friday closes the week out with a plethora of important numbers, including the December CPI (e: +0.4%, +0.1% core), December retail sales (e: +0.8%, +0.7% exautos), December industrial production (e: +0.5%), preliminary January Michigan sentiment (e: 75.4), and November business inventories (e: +0.7%). Fed speakers finally show back up in force, with the schedule leaning a bit hawkish. On Monday we'll get an economic update from Atlanta's Lockhart (alternate, moderate). On Tuesday Philadelphia's Plosser (voter, hawk) will speak on the outlook, followed by Minneapolis's Kocherlakota (voter, moderate) at an economic forecast luncheon. On Wednesday, Dallas's Fisher (voter, hawk) will speak on "The Limits of Monetary Policy," and the Fed will release its latest Beige Book, the anecdotal summary of economic conditions for use at the January FOMC meeting. On Friday, Richmond's Lacker (alternate, hawk) will give his take on the outlook, followed by Boston's Rosengren (nonvoter, dove) speaking at a New England Mortgage Expo event (at a casino of all places). The Fed will conduct two rounds of outright Treasury purchases, targeting 7- to 10-year coupons (e: $7-9 bln) Monday and 6- to 7-year coupons (e: $7-9 bln) Tuesday. The NY Fed will release its schedule of outright Treasury coupon/tips purchases (e: $105 bln) on Wednesday. In addition to the weekly bill auction cycle, Treasury will auction $32 bln 3-year notes Tuesday, $21 bln 10-year notes Wednesday, and $12 bln 30-year bonds Thursday. Fannie Mae will make a reference note announcement Wednesday, and Treasury will announce 10-year TIPS (e: $12 bln) Thursday. IFR Commentary Wholesale Trade (Nov) (Tue) We expect wholesale inventories growth to have slowed to about a 1.2% rate in November, from October's +1.9%, while sales drop from an extremely strong +2.2% October reading to something in the neighborhood of +1.0%. With retail sales staying strong in November, wholesale sales likely kept a decent pace of growth as well, though likely not enough to match a stellar October reading. With strong sales growth, wholesalers will have likely kept up strong inventory accumulation as well, to keep pace. The wholesale inventory/sales ratio has floated back up from a record low of 1.13 in April to the prerecession norm of 1.18 over September and October, and we expect that wholesalers are comfortable there, showing neither excessive fear or optimism about the pace of future sales. Import Prices (Dec) (Wed) We expect a 0.4% rise in December import prices, a significant slowing from a 1.3% increase in November. Half of the rise will come from petroleum, though a 2.5% rise in petroleum will be a slowing from the preceding 2 months. November s data appeared to fully catch early November strength in petroleum, and early December saw petroleum prices only moderately above early November levels after an intervening dip. Ex petroleum we expect a rise of only 0.2%, a significant slowing from November s 0.7% rise, which was the largest since June A 0.2% ex petroleum rise would be the softest outcome since declines seen un June and July, which came in response to USD gains as the European

3 debt crisis flared up. Renewed USD gains in December, again inspired by European concerns, will be behind the slowing in ex petroleum gains. Republican Congressional leadership will start to hit revenues, and further reductions in the deficit will become harder to achieve. Treasury Statement (Dec) (Wed) In line with the CBO s monthly review, we project a December 2010 budget deficit of $80.0 bln, which would be down from $91.41 bln in December For the first 3 months of the current fiscal year this would leave a deficit of $ bln, down from $ bln in first three months of the prior fiscal year. Revenues should be up by 8.0% yr/yr, a slight slowing from the year to date pace, with the first significant month of the year for corporate taxes showing a modest 7% gain. Outlays should be up 2.0% yr/yr, though there are a number of special factors here. Shifting of payments because of weekends and holidays lifted outlays by $37 bln in December 2009 but only $12 bln in December Financial institutions insured by the FDIC prepaid three years of insurance premiums in December 2009 reducing net outlays by $46 bln in that month and raising them by $4 bln in December Excluding these factors, outlays would have fallen by 5.5%. If reductions of $14 bln in outlays to Fannie Mae and Freddie Mac and $4 bln for the TARP are also adjusted for, outlays would have fallen by 1.0% yr/yr, hinting spending is being restrained by a fading of the spending stimulus. The December data should restore a tendency for a slowly falling deficit that was interrupted by calendar effects in November. Come January however, fresh tax cuts as part of the deal between President Obama and the Initial Claims (wk 01/08) (Thu) As we enter the peak of the seasonal season, buffering should not allow filings to fluctuate far from 412,000 for the week ending January 8th reflecting an increase of 3k. It appears the outperformance of seasonal factors finally caught up with this week s release, as NSA filings rose over two times what was expected pushing claims up to 409k (an increase of 18k from the previously reached 30-month low). Regardless, the forthcoming hiccups in the data embodying newly passed legislation and industry trends shouldn t deter from the longer-term trend of decline (even with a noted increase next week, the average would still round to 410k).

4 International Trade (Nov) (Thu) We project a US trade deficit of $41.4bln in November, a correction from October s surprise narrowing to $38.7bln from September s $44.6bln, though November s deficit should remain below those of each month seen in Q3. ISM manufacturing data in November saw its exports index slip to 57.0 after surging to 60.5 in October while imports rose to 53.0 after falling to 51.5 in October. That the exports index remained ahead of imports (a contrast to August and September data) suggests only a partial correction of the steep October narrowing of the deficit. We expect exports to rise by 0.8% after a 3.2% surge in October, but this should be fully explained by price gains, with export volumes seen correcting marginally lower from an October gain that comfortably outpaced a fairly modest rise in manufacturing shipments. Softer Boeing exports and a sharp monthly drop in auto output may assist a pause in export volumes. We expect a 2.0% rise in imports, with both prices and volumes contributing, the latter a correction from 2 straight falls. Petroleum import volumes should rebound from a fall in October, while customs duties on imports picked up in November. with softness seen in natural gas. Recent volatility in the core rate has been led by autos, which plunged in October and rebounded in November, the same as in Autos should be less of a factor in December, but risk is on the upside, with October s auto decline still not fully reversed. There may also be some feed through from recent strength in core crude and intermediate PPI data. These factors suggest December core PPI will be on the firm side of a recent 0.1% per month underlying trend. Yr/yr core PPI should edge up to 1.3% from 1.2% while yr/yr overall PPI should remain at November s 3.5% pace. PPI (Dec) (Thu) We expect a 0.5% rise in December s PPI with a 0.2% increase ex food and energy. Food should rise by 0.7%, a continued feed through from recent sharp gains in farm prices if less steep than November s 1.0%, with the pace of increase in farm prices having moderated. Energy should rise by 1.3%, led by continued strength in gasoline, though the overall energy rise should be less sharp than in the preceding two months, CPI (Dec) (Fri) We expect a 0.5% increase in December s CPI and a 0.2% increase ex food and energy. This would see the yr/yr pace rise to 1.5% from 1.1% though the yr/yr core rate would remain at November s 0.8% pace, above October s record low of 0.6%. The overall gain will be led by gasoline, where seasonal adjustments should further inflate gains visible in unadjusted gasoline prices, bringing a 3.2% rise in adjusted energy prices. Food should also be above trend with a 0.4% rise as recent strong gains in farm prices feed through. Before rounding, the CPI gain should be on the firm side of 0.5%. While the core should be a little softer than 0.2% before rounding, it will still be the strongest rise in the core rate since June. Energy price gains should feed through into airfares, and weakness in owners equivalent rent (which makes up 25% of the index) appears to be fading. A positive seasonal adjustment (most notably in apparel) should give the core rate some support,

5 particularly if the seasonals catch up from a November adjustment that was less positive than is usual for that month. Retail Sales (Dec) (Fri) December retail sales should record a solid 0.8% increase overall, matching that of November, with a 0.6% rise ex-autos, a pace only half of a 1.2% rise in November. Excluding both autos and gasoline, we see only a modest 0.3% rise in sales, a slowing from four straight strong increases averaging 0.8%. Industry data show that auto sales, after sustaining a sharp October rise in November, in December reached their highest level of the year. Half of the ex-autos gain will come from gasoline, where prices increased sharply in December. We actually expect gasoline volumes to slip from November when gasoline sales gains exceeded those seen for prices. Chain store data showed yr/yr gains slowing below expectations at 3.1%, down from 5.4% in November. Some of the slowing in yr/yr growth reflects a tougher year ago comparison, but it does appear that bad weather late in the month put a dent in the recent improvement in trend. Still, with Redbook up by 0.4% on the month, ex-autos and gasoline data should be able to record a positive monthly outcome. Industrial Production (Dec) (Fri) We look for industrial production to have bounced up about 0.6% in December, the strongest in five months, but supported largely by utilities in a colder than usual winter. While most manufacturing surveys have indicated a quickening pace of growth, the employment report pointed to a contraction in the sector's hours aggregate worked, so we look for modest manufacturing output growth in the neighborhood of +0.2%. Though that would be the sixth consecutive month of growth for manufacturing IP, the pace of improvement has slowed markedly from the prior year (H H1 2010). Input price recovery appears to be a growing restraint, even though vast labor market slack remains and our projected improvement would only bring capacity utilization up to about 75.7%, still well below the long-run norm of nearly 80%.

6 Michigan Sentiment (pjan) (Fri) The Thomson Reuters/University of Michigan Consumer Sentiment Index (CSI) should continue its momentum to 75.0 (from 74.5) as the employment prospects that prompted spending in December will be coupled with higher income (the extended tax cuts) in the first couple of weeks of the New Year. The gain in the preliminary January reading should be comparably split between the Current Conditions (surpassing last year s reading) and Expectations (just 1.5 pts shy of its year-ago level) components. While RBC s sentiment survey (COI, 44.9) barely changed between monthly readings, news of the recently released ADP report indicating a strong finish to 2010 payrolls may have given two weeks to add to general optimism. As well, a slightly improved stock market (up 1% in the first week of January, and 4% 1-month change) and moderating retail gasoline prices should soothe earlier concerns. component's I/S ratio unchanged as well. The overall ratio is consistent with the pre-recession norm, while manufacturers continue to keep a higher than usual I/S ratio, balancing out a lower than usual ratio among retailers. Business Inventories (Nov) (Fri) We look for November business inventories to have risen about 0.9%. That represents an already-reported manufacturing inventory gain of 0.8%, our wholesale inventories call of +1.0%, and a rebound in retail inventories of about 0.9%. Retail inventories fell 0.6% in October, as a 1.8% surge in sales likely caught retailers flat-footed. Sales rose a relatively modest 0.9% in November, and inventory accumulation likely at least kept pace. Assuming no significant revision to November retail sales, that would leave the inventory-sales ratio unchanged at 1.27, and in fact leave every Jeoff.Hall@thomsonreuters.com (617) 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 Jan 11 07:00 NFIB Index Idx Dec Jan 11 10:00 Wholesale Invent. %m/m Nov Jan 11 10:00 Wholesale Sls %m/m Nov Jan 12 08:30 Import Prices %m/m Dec Jan 12 14:00 Treasury Budget $bn Dec Jan 13 08:30 Initial Claims k 01/ Jan 13 08:30 Cont. Claims k 01/ Jan 13 08:30 International Trade $bn Nov Jan 13 08:30 PPI %m/m Dec Jan 13 08:30 PPI-YOY %y/y Dec Jan 13 08:30 Core PPI %m/m Dec Jan 13 08:30 Core PPI-YOY %y/y Dec Jan 14 08:30 CPI %m/m Dec Jan 14 08:30 CPI-YOY %y/y Dec Jan 14 08:30 Core CPI %m/m Dec Jan 14 08:30 Core CPI-YOY %y/y Dec Jan 14 08:30 Retail Sales %m/m Dec Jan 14 08:30 Retail Sales ex-autos %m/m Dec Jan 14 09:15 Industrial Production %m/m Dec Jan 14 09:15 Capacity Utilization % Dec Jan 14 09:55 Michigan Sent (prelim) Idx Jan Jan 14 10:00 Business Inventories %m/m Nov On the Horizon: Date ET Release Unit Period IFR Est Prev Median Range Jan 17 08:30 Empire State Mfg. Idx Jan Jan 18 10:00 NAHB Index Idx Jan Jan 19 08:30 Housing Starts k,ar Dec Jan 19 08:30 Building Permits k,ar Dec Jan 20 08:30 Initial Claims k 01/15 n/a Jan 20 08:30 Cont. Claims k 01/08 n/a Jan 20 10:00 Existing Home Sales k Dec Jan 20 10:00 Leading Indicators %m/m Dec Jan 20 10:00 Philly Fed Survey Idx Jan Consensus (median) forecasts supplied by Reuters News.

8 Review of the January 3 7 Week Date Release Unit Period Actual Rev Previous Median Range Jan 03 Construction Spending %m/m Nov Jan 03 Domestic Vehicle Sales M Dec Jan 04 Factory Orders %m/m Nov Jan 04 Fact Ords ex-trans %m/m Nov Jan 05 Challenger Job Cuts k Dec Jan 05 ADP Employment Report k Dec Jan 05 ISM Non Mfg Idx Idx Dec Jan 06 ICSC Sls Idx Idx Dec Jan 06 Initial Claims k 1/ Jan 06 Cont. Claims k 12/ Jan 07 Nonfarm Payrolls k Dec Jan 07 Private Payrolls k Dec Jan 07 Unemployment Rate % Dec Jan 07 Avg Hrly Earnings %m/m Dec Jan 07 Work Week hrs Dec Jan 07 SHRM/Rutgers LINE Mfg Idx Jan Jan 07 SHRM/Rutgers LINE Svcs Idx Jan Jan 07 Consumer Credit $bn Nov Consensus (median) forecasts supplied by Reuters News. Treasury Financing Calendar Security Type Amount Announcement Auction Settlement 13-Week BILL $29B 06-Jan 10-Jan 13-Jan 26-Week BILL $28B 06-Jan 10-Jan 13-Jan 4-Week BILL e$25b 10-Jan 11-Jan 13-Jan 52-Week BILL $22B 06-Jan 11-Jan 13-Jan 3-Year NOTE $32B 06-Jan 11-Jan 18-Jan 8-Week BILL e$25b 10-Jan 12-Jan 13-Jan 10-Year R NOTE $21B 06-Jan 12-Jan 18-Jan 30-Year R BOND $13B 06-Jan 13-Jan 18-Jan 10-Year TIPS e$12b 13-Jan 20-Jan 31-Jan 13-Week BILL e$29b 13-Jan 17-Jan 20-Jan 26-Week BILL e$28b 13-Jan 17-Jan 20-Jan R denotes reopening Federal Reserve Purchase Schedule Operation Date Settlement Date Operation Type Maturity Range Expected Purchase Size 10-Jan 11-Jan Outright Tsy Coupon Purchase 2/15/ /15/2020 $7 - $9 billion 11-Jan 12-Jan Outright Tsy Coupon Purchase 7/31/ /31/2017 $7 - $9 billion