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|  | JANUARY 28, 2005
Vital Signs for the Week of Jan. 31 On Tap: The Federal Reserve meets, the January jobs report, fourth-quarter productivity figures, and more The fundamentals are still in place for the solid economic recovery to continue. Indeed, the upcoming batch of economic data should show the economy hasn't skipped a beat entering 2005. The Labor Dept.'s fourth-quarter gross domestic product report showed that consumers and companies continued to spend in the fourth quarter, and there are few signs of any changes. Consumer confidence is up, the economy looks set to keep adding jobs at a respectable pace, and wages and income continue to rise at a faster rate than inflation. The data point to continued strength in consumer spending. The January labor report and December figures on personal income are expected to affirm the trend. The December data on factory orders is expected to show another solid gain of 0.6%, according to economists surveyed by Action Economics. The surge in orders in the final quarter was due in part to a sunsetting tax break that allowed companies to take an immediate 50% bonus-depreciation allowance on capital investments. This tax provision expired at the end of 2004. However, the level of unfilled orders continues to mount, as the backlog for durable goods rose 0.5% in December -- a sure sign of long-term strength in corporate spending and capital investment. Indeed, the national factory activity index from the ISM should provide further evidence that demand remains robust. Besides the overall headline index, the new orders and unfilled orders indexes are also important to watch. All this good news points to the likelihood that the Fed will continue to hike rates. Economists expect another quarter-point hike at the end of the Fed's two-day meeting this week. With economic growth on the upswing and concerns mounting about inflation, the debate among economists has shifted to whether the central bank will become more hawkish later this year. Here's the weekly economic calendar. EARNINGS REPORTS Monday, Jan. 31AFLAC (AFL ), Allegheny Technologies (ATI ), Entergy (ETR ), ExxonMobil (XOM ), Hilton Hotels (HLT ), Kellogg (K ), Leggett & Platt (LEG ), Mattel (MAT ), MeadWestvaco (MWV ), Nabors Industries (NBR ), Sealed Air (SEE ), SYSCO (SYY ), Visteon (VC ), Walt Disney (DIS ), Wyeth (WYE ), Zimmer Holdings (ZMH ), and more. PERSONAL INCOME AND CONSUMER SPENDING Monday, Jan. 31, 8:30 a.m. ESTPersonal income is likely to have grown at a stellar clip in December, although the data will be skewed. The consensus among economists surveyed by Action Economics LLC is for a 1% rise for the month. However, some economists are forecasting a gain of better than 3%. The Microsoft (MSFT ) dividend payout of $3 per share on Dec. 2 is the culprit for the unusually large anticipated gain. The total payout from Microsoft was around $32 billion. The Commerce Dept. believes close to three-quarters of the money will be registered as personal dividend income with the remaining money destined for state and federal governments, businesses, and foreign residents. In November, income grew 0.3%, after a 0.6% jump in October, and a 0.2% gain in September. Compared to a year ago, income was up by 4.9% in November, and the increase in December will be 5% if the forecasted gain proves correct. Outlays on goods and services are forecast to have surged by 0.8% during the final month of 2004. Consumer expenditures rose 0.2% in November, after a 0.8% leap in October. Yearly rate of consumer spending stood at a pace of 6.1% in November and should come in near 6.2% in December. The November price index of personal consumption expenditures inched up by 0.1%, after a 0.4% rise in October. Compared to the same month a year ago, prices were up 2.6% due in large part to energy. Excluding food and energy, prices were up by 1.5% from a year ago in November. The Fed prefers the personal consumption expenditures price indexes as a means to gauge inflation. NEW RESIDENTIAL SALES Monday, Jan. 31, 10 a.m. ESTNew single-family homes sales during December probably improved slightly. Economists surveyed by Action Economics LLC expect that new home sales climbed at a pace of 1.2 million, following a November slip to an annual pace of 1.13 million homes. The housing market remains healthy with wages continuing to rise and the labor market slowly improving. The steady drumbeat of Fed rate hikes may also be motivating some to purchase homes sooner rather than later to lock in a lower rate. CHICAGO PURCHASING MANAGERS SURVEY Monday, Jan. 31, 10 a.m. ESTThe Chicago-area purchasing managers' index of industrial activity in the Midwest probably eased to 60 for January. That's the median forecast of economists surveyed by Action Economics LLC. The index fell to 61.2 in December, after coming in at 65.2 in November, down from 68.5 in October. The other indexes also slowed. The production index retreated to 66.8, from 68.4 in November, but remained above the September and August levels. New orders declined to 64.5, from 70 in November, and 79.4 in October. Backlogged orders barely grew in December, with the index falling to 51.7, from 52.7 in November. The biggest change came in the employment index. After reaching the highest level since August of 1988 with a reading of 60.8, the employment index stood at 49.1 in December. A reading below 50 indicates a decline in factory payrolls for the region. MEETING OF NOTE Tuesday-Wednesday, Feb. 1 & 2The Federal Reserve's Federal Open Market Committee meets to discuss monetary policy. An announcement by the Fed will come on Wednesday at around 2:15 p.m. Economists expect the FOMC to raise the federal funds rate once again. Those surveyed by Action Economics LLC unanimously forecast a 25 basis point increase, to 2.5%. EARNINGS REPORTSAllied Waste Industries (AW ), Avon Products (AVP ), BJ Services (BJS ), Boston Scientific (BSX ), Chubb (CB ), Emerson Electric (EMR ), Georgia-Pacific (GP ), HCA (HCA ), Ingersoll-Rand (IR ), Monster Worldwide (MNST ), PACCAR (PCAR ), Unocal (UCL ), Valero Energy (VLO ), Xcel Energy (XEL ), Yum! Brands (YUM ), and more. VEHICLE SALE Tuesday, Feb. 1Sales of domestic and imported cars and light trucks during January are expected to have slowed to an annual pace of 16.3 million vehicles, according to J.P. Morgan Chase & Co. That would be a significant slowdown from the surprising December pace of 18.4 million, and below the November rate of 16.4 million. Expectations for early 2005 aren't too upbeat. American auto makers are holding large levels of inventories. Additional incentives by the auto makers will be needed in order to move vehicles off the lots. ICSC-UBS STORE SALES Tuesday, Feb. 1, 7:45 a.m. ESTThis weekly tracking of retail sales, assembled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ending January 29. In the week ended January 22, seasonally adjusted sales edged up by 0.1%, after tumbling by 0.9% in the previous period, and a 0.6% decline in the week ended January 8. INSTINET REDBOOK RESEARCH STORE SALES Tuesday, Feb. 1, 8:55 a.m. ESTThis weekly measure of retail activity will report on sales for the fourth and final fiscal week of January, ending January 29. During the first three weeks, ended January 22, sales were up 1.1% compared to sales for all of December. For the month of December, sales were up 0.2% from November. ISM SURVEY Tuesday, Feb. 1, 10 a.m. ESTThe Institute for Supply Management's December index of industrial activity is expected to have remained fairly steady. The consensus among economists surveyed by Action Economics LLC is for the index to hold at 57.3%. After the ISM's annual revisions to seasonal factors, the December came in at 57.3%, off slightly from 57.6% in November, and 57.5% in October. The latest results show U.S. manufacturers remain fairly confident heading into 2005. The revised new orders index shot up to 62.6% in December, from 60.7% in November, and 59.3% in October. The year-end expiration of the bonus depreciation provision may have played a role in the big December jump. Companies may have put in last minute orders for capital equipment in order to take advantage of the accelerated depreciation schedule. The index tracking production was nearly unchanged, coming in at 56.7%, from 57% in November. The pace of inventory growth accelerated with a December reading of 52.8%, from 50.5% in November. At the same time, backlogged orders turned around. The December index hit 54%, after a November level of 47.5% and an October reading of 49%. A reading below 50% indicates that the overall level of unfilled orders has fallen. CONSTRUCTION SPENDING Tuesday, Feb. 1, 10 a.m. ESTConstruction spending is expected to have improved. The median forecast by economists surveyed by Action Economics LLC is for a 0.5% increase during December. In November, outlays fell by 0.4%, after growing by 0.3% in October and 0.6% in September. The November dip was brought on by a drop in outlays on new home and office construction. Spending on private single-family homes fell 0.7% in November, after holding steady in October and falling 0.4% in September. Compared to a year ago outlays for residential construction were up 10%, a significant slowdown from the 15.8% rate back in June. The deceleration is more significant for the single-family home sector, with yearly spending up 10.7% in November, compared to a yearly pace of 25.1% in May. Dollars spent on construction for office space fell 2.2% in November, the fifth straight monthly decline. MEETING OF NOTE Wednesday, Feb. 2, 9 p.m. ESTU.S. President George W. Bush delivers the State of the Union address before Congress in Washington EARNINGS REPORTS Wednesday, Feb. 2ACE Limited (ACE ), Anheuser-Busch (BUD ), Countrywide Financial (CFCI ), Cummins (CMI ), CVS Corporation (CVS ), Devon Energy (DVN ), Fluor (FLR ), Great Lakes Chemical (GLK ), Harrah's Entertainment (HET ), Northrop Grumman (NOC ), Pitney-Bowes (PBI ), PPL Corporation (PPL ), Boeing (BA ), TXU (TXU ), and more. MORTGAGE APPLICATIONS Wednesday, Feb. 2, 7 a.m. ESTThe Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending January 28. In the week ended January 21 the purchase index fell to 439, from 448.1 during the week of January 14, and from 393.1 in the previous week. The latest reading of the four-week moving average fell to 424.4, from 435.6 in the week ended January 14. The average rate on a conventional 30-year mortgage, according to HSH Associates, eased back to 5.77%, from 5.82% in the period ended January 21. The MBA's refi index retreated to 1932.8, from 2048.6 in the week ended January 14, but remained above the 1720.5 level in the prior period. As a result, the four-week moving average reached 1850.8, from 1818.6 in the week ended January 14. MEETING OF NOTE Thursday, Feb. 3-Sunday, Feb. 6U.S. Treasury Secretary John Snow takes part in the Group of Seven meetings in London.
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