US Economic Indicators Preview

(Week of 25 February to 2 March 2008)

- Producer price inflation could have accelerated in January
- Consumer confidence indicators are likely to have fallen significantly in February
- January durable goods orders will probably have lost most of the previous month's gains

Indicator Date BHF forecast Consensus forecast Previous
Existing home sales / Jan Mon 25 Feb, 16:00 4.77m 4.80m 4.89m
Producer prices (PPI) / Jan Tue 26 Feb, 14:30 0.6% mom
7.3% yoy
0.4% mom
7.2% yoy
-0.1% mom
6.3% yoy
PPI ex food & energy / Jan Tue 26 Feb, 14:30 0.3% mom
2.3% yoy
0.2% mom
2.2% yoy
0.2% mom
2.0% yoy
Consumer confidence / Feb Tue 26 Feb, 16:00 80.0 82.0 87.9
Durable goods orders / Jan
- ex transportation
Wed 27 Feb, 14:30 -4.2% mom
-1.6% mom
-4.0% mom
-1.4% mom
5.0% mom
2.3% mom
New home sales / Jan Wed 27 Feb, 16:00 600k 600k 604k
Bernanke congressional testim. Wed 27 Feb, 16:00 Presentation of the Monetary Policy Report
GDP / Q4 (prel.)
PCE core deflator / Q4
Thur 28 Feb, 14:30 0.8% qoq
2.7% qoq
0.7% qoq 4.9% qoq (Q3)
2.0% qoq (Q3)
Initial jobless claims / 23 Feb Thur 28 Feb, 14:30 360k 350k 349k
Personal income / Jan
Personal spending (PCE) / Jan
Fri 29 Feb, 14:30 0.1% mom
0.2% mom
0.2% mom
0.2% mom
0.2% mom
0.2% mom
PCE core deflator / Jan Fri 29 Feb, 14:30 0.3% mom
2.2% yoy
0.2% mom
2.1% yoy
0.2% mom
2.2% yoy
Chicago PMI / Feb Fri 29 Feb, 15:45 49.0 49.6 51.5
UMI consumer sent. / Feb (final) Fri 29 Feb, 16:00 69.5 70.0 69.6 (prel.)
78.4 (Jan)

Existing home sales fell sharply by 2% mom in December and were 22 % lower than in the previous year. Pending home sales, which have a forerun of about 2 months to existing home sales, declined sharply at the end of 2007. In addition, home prices have not yet stopped declining, and falling prices are raising real financing costs, which is also likely to dampen sales. We expect January existing home sales to have fallen to 4.77m, the lowest level since 1998.

At 4.7%, the December decrease in new home sales was even more marked. The median home price plummeted by almost 11% mom, and months supply continued to rise. We forecast that new home sales will have fallen to 600k, thus remaining close to their 13-year low.

Producer prices (PPI) declined by 0.1% mom in December, but given that import prices rose significantly by 1.7% mom mainly due to energy prices, January PPI could have gone up markedly too, by 0.6% mom. The much higher price component of the ISM manufacturing and the Philadelphia Fed's prices paid index also indicate a relatively sharp increase. The annual rate would thus exceed the 7-% mark. Core PPI could have increased by 0.3% mom and 2.3% yoy.

The University of Michigan's (UMI) preliminary February consumer sentiment plummeted from 78.4 to 69.6, and the ABC consumer comfort poll dropped to the lowest level since 1993. The Conference Board's consumer confidence is likely to have followed suit and declined from 87.9 to about 80.0 in February, which would be the lowest level since September 2003. This will probably have been partly due to the fact that non-farm payrolls declined in January for the first time, and the recent rise in jobless claims. At 69.5, we are not expecting the final UMI consumer sentiment to differ much from the low preliminary result, as the most recent rise in crude oil prices could have prevented the index from recovering.

Durable goods were remarkably strong in December and rose by 5.0% mom, particularly due to aircraft orders. As Boeing aircraft orders decreased by 77 % mom and vehicle orders probably remained weak, durable goods orders are likely to have lost most of the previous month's gains, falling by 4.2% mom. Durable goods orders ex transportation also went up sharply by 2.3% mom in December, as non-defense capital goods orders ex aircraft showed a surprising gain. However, given the economic slowdown and tighter lending standards, we expect capital goods orders to have suffered a setback, and thus durable goods orders ex transportation could have fallen by 1.6% mom.

The advance estimate of GDP growth in Q4 showed a sharp slowdown from 4.9% to an annualised 0.6% qoq, mainly due to significant negative contributions from residential and inventory investment and smaller positive contributions from private consumption, corporate investment, government spending and net exports. The preliminary results will probably be a little higher: due to the noticeable improvement in the December trade balance, net exports could be revised upwards, and inventories also turned out slightly better than estimated at first. However, the revision in retail sales suggests that consumer spending was somewhat weaker. We expect the preliminary GDP to have gone up by 0.8% qoq in Q4. The PCE core deflator is likely to be confirmed at 2.7% qoq, after 2.0% in Q3.

Initial jobless claims have been trending upward recently, and the 4-week moving average has reached 360k, which is also our forecast for jobless claims in the week ending 23 February. However, the fact that the reporting week included a national holiday adds uncertainty to the forecast.

We expect personal income to have risen by a mere 0.1% mom in January, as weekly earnings declined due to a drop in working hours. We also forecast that personal spending will only have risen slightly by 0.2% mom, mainly due to higher gasoline prices. Contrary to the retail sales report, we do not expect car sales to have supported spending. As the PCE deflator will have gone up by at least 0.3% mom, real personal spending would have fallen in January. Just like core CPI, the PCE core deflator could have increased by 0.3% mom, as medical care costs seem to have gone up noticeably. The annual rate might remain at 2.2%. In its baseline scenario, the FOMC is no longer expecting the core PCE deflator to fall below 2% in 2008.

The Chicago Purchasing Manager Index already went down sharply in January, dropping from 56.4 to 51.5. Given that it is no longer a manufacturing index only, and that the ISM non-manufacturing index plummeted in January, the Chicago PMI could well have fallen to about 49.0, below the expansion threshold, in February.

Fed president Bernanke is invited to present the new Monetary Policy Report in Congress on 27 February. The revised forecasts were already included in the latest FOMC minutes (see graph on the right). Mr Bernanke is likely to forecast that economic growth will strengthen in the 2nd half of 2008 due to fiscal and monetary stimulus. But he will also emphasize the downside risks, thus leaving the door wide open for further rate cuts.


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