|
|
Get Four
|  | JUNE 24, 2005
Vital Signs for the Week of June 27On tap this week: The Federal Reserve monetary policy meeting, May personal income and spending data, June consumer confidence figures, and moreThe Federal Reserve meets for two days to discuss monetary policy. It would be a genuine surprise if the central bank decided to do anything but raise its key fed funds rate by another 25 basis points to 3.25%. Once again, the Fed's words will likely speak louder than its actions, as markets will dissect the post-meeting press release. The latest economic data will likely lead Fed Chairman Alan Greenspan and company to state that the upside and downside risks to economic growth and price stability are about the same. With the fed funds rate currently at 3%, the real level of interest rates, which accounts for inflation, remains fairly low. TOO LOW? Using the Fed's preferred gauge of inflation buried deep inside the personal income report coming out on Thursday, June 30, the real fed funds rate is currently at 1.4%. That is probably still too low for the Fed. Indeed, according to the Bond Market Association's Economic Outlook report in December, the BMA's Economic Advisory Council believed a neutral real fed funds rate —- a level that neither inhibits or stimulates growth —- would be in the neighborhood of 2.5%. Given the low long-term interest rates and increased talk that the Fed should soon stop its rate hikes, the BMA's updated mid-year Economic Outlook report will prove to be interesting. HOLDING UP WELL. Looking at the economic fundamentals, consumers appear to be holding up well. Personal income is expected to keep rising at a solid clip, and consumer confidence is also expected to improve from May levels. The combination bodes well for consumer spending in the face of another round of rising gasoline prices. Unfortunately, manufacturers are not faring as well right now. Durable goods orders were soft in May, although orders are notoriously volatile. Manufacturing activity surveys are pointing to slower growth in demand. The Institute for Supply Management's June factory activity index is expected to remain unchanged after slipping in May to its lowest level in nearly two years. In the final analysis, economic growth appears to be holding up well, but a little uneven across sectors. That is good enough for the Fed to keep raising rates, especially with the labor market still improving, no letup in sight for housing, and evidence of rising unit labor costs. Here's the weekly economic calendar. MEETING OF NOTE Monday, June 27 U.S. President George W. Bush hosts German Chancellor Gerhard Schroeder at the White House in Washington, D.C. EARNINGS REPORTS Monday, June 27 Nike (NKE ), Paychex (PAYX ), Walgreen (WAG ), and more. ------------------------------------------ MEETINGS OF NOTE Tuesday, June 28, 12 p.m. EDT The Bond Market Association holds a press conference for the release of its mid-year economic forecast in Washington, D.C. 6 p.m. EDT U.S. Treasury Secretary John Snow addresses the Council on Foreign Relations in New York City. EARNINGS REPORTS Tuesday, June 28 Apollo Group (APOL ), and more. ICSC-UBS STORE SALES Tuesday, June 28, 7:45 a.m. EDT This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ending June 25. In the week ended June 18 sales grew 0.1%, following a 0.6% in the previous period, and a 0.4% gain in the week ended June 4. INSTINET REDBOOK RESEARCH STORE SALES Tuesday, June 28, 8:55 a.m. EDT This weekly measure of retail activity will report on sales for the fourth fiscal week of the month, ended June 25. During the first three fiscal weeks ended June 18, sales were off 0.1% vs. the same period in May. May sales were up 2.5% compared to April. CONSUMER CONFIDENCE INDEX Tuesday, June 28, 10 a.m. EDT The Conference Board's June index of consumer confidence most likely nudged up to 104.8. That's the consensus among economists queried by Action Economics. In May, the index bounced up to 102.2, from 97.5 in April. Consumers felt better about both current conditions and future prospects. When it came to judging business conditions and the job market, respondents expected improvement over the coming six months. The number of persons who said jobs currently are plentiful or hard to get both increased. However, the view on jobs for the second half of the year was more positive. The outlook for income also was a little more positive as well. RICHMOND FED SURVEY Tuesday, June 28, 10 a.m. EDT The Richmond Federal Reserve Bank will release the June survey of business conditions in the Richmond Fed district. The May survey showed that manufacturers saw a little more improvement in business conditions. The headline index edged up to 4, from a reading of 2 in April, and 0 in March. The February composite index reading was 4. The shipments index drifted up to 11 in May, from 6 for the prior month. However, the index tracking new order held at 5, while the unfilled orders index slid to -6, from -3 in April. Manufacturers were also cutting back on employees, with the employment index below zero for a third straight month. The average workweek also appeared to shrink a little in May. Optimism for the coming six months waned. The shipments index stood at 17, from 23 in April, and 33 in March. The new orders and backlogged orders indexes fell, although both remained in positive territory. Both indexes are measures of how much demand is in the pipeline. As far as pricing power and input costs are concerned, manufacturers expect to be squeezed some more. Increases in both prices paid and received are expected to decelerate. However, price hikes for the goods manufacturers produce are expected to cool off at a faster pace than input costs. ------------------------------------------ MEETING OF NOTE Wednesday-Thursday, June 29-30 The Federal Reserve's Federal Open Market Committee holds a two-day meeting to discuss monetary policy. An announcement by the Fed will come on Thursday around 2:15 p.m. A majority of Fed watchers expect another hike to the federal funds rate. According to Action Economics, the consensus view is another 25 basis point increase, to 3.25%. Once again, the post-meeting press release will likely take on more importance than the anticipated rate hike. In recent speeches, Federal Chairman Alan Greenspan acknowledged the red-hot housing market has caught the central bank's focus. Signs that unit labor costs are picking up as productivity decelerates are also potential inflation threats. With inflation-adjusted interest rates still quite low, the Fed is likely to keep raising rates. EARNINGS REPORTS Wednesday, June 29 General Mills (GIS ), Monsanto (MON ), Oracle (ORCL ), and more. MORTGAGE APPLICATIONS Wednesday, June 29, 7 a.m. EDT The Mortgage Bankers Association releases its numbers on mortgage applications for both home buying and refinancing for the week ending June 24. Over the week ended June 17, the purchase index retreated to 479.4, after zooming to a new record high of 529.3 in the week ended June 10, from 479.3 for the week ended June 3. The four-week moving average, edged down to 487.7, from 488.4 for the week ended June 10. The average rate on a conventional 30-year mortgage, according to HSH Associates, fell a little more. In the week ended June 17 the rate climbed to 5.81%, from 5.71% in the week ended June 10. The MBA's refi index shot higher. In the period of June 17, the index cooled down to 2575, from 2967.4 in the prior week, but remained above the 2362.1 level for the week of June 3. The four-week moving average, however, climbed to 2511.65, from 2409.9 in the week ended June 10. GROSS DOMESTIC PRODUCT Wednesday, June 29, 8:30 a.m. EDT The preliminary report on economic growth for the first quarter of 2005, measured by real gross domestic product, is expected to show the economy expanded by a seasonally adjusted annual rate of 3.7%. That is the consensus among economists queried by Action Economics. The initial report on first-quarter growth showed a disappointing annualized pace of 3.1%, but that level was revised up to 3.5% in May. The upward revision was primarily the result of a smaller than expected March trade deficit. In addition, downwardly revised contributions to economic growth from business investment and inventory building were partially offset by an upward adjustment to consumer spending. In the fourth quarter, the economy expanded at a seasonally adjusted annual rate of 3.8%, after a 4% increase in the third quarter, and a 3.3% "soft patch" of growth in the second period of 2004. ------------------------------------------ EARNINGS REPORTS Thursday, June 30 Biomet (BMET ), ConAgra Foods (CAG ), McCormick (MKC ), and more. JOBLESS CLAIMS Thursday, June 30, 8:30 a.m. EDT First-time claims for jobless benefits for the week ended June 25 most likely rose to 323,000. Jobless claims slipped to 314,000 in the week ended June 18, from an upwardly revised level of 334,000 for the week of June 11. Initial claims during the week ended June 4 stood at 333,000. The four-week moving average eased back to 333,000, from 335,500 during the previous period. Continuing jobless claims fell to 2.6 million, from 2.64 million in the week ended June 11. PERSONAL INCOME AND CONSUMER SPENDING Thursday, June 30, 8:30 a.m. EDT Personal income kept growing in May. The consensus among economists surveyed by Action Economics is for a 0.3% increase during the month. In April, income rose 0.7%, after 0.5% gains in both March and February. Compared to a year ago, income was up by 7% in April for a second straight month. Outlays on goods and services probably improved by 0.1% in May. A slowdown in May vehicle sales will likely weigh on the overall spending figure. In April, consumption rose 0.6%, after a March jump of 0.9%, and a February rise of 0.7%. The yearly growth rate of consumer spending picked up to 6.9% in April, from 6.3% in March, and 5.8% in both February and January. The price index for personal consumption expenditures (PCE) will attract attention once again. The earlier May inflation measures were fairly benign. The consumer price index slipped 0.1% for the month, and stood 2.8% above the year ago level. The April PCE index rose to 2.7% from the same period a year ago, up from 2.4% in March. However, the Federal Reserve's preferred inflation gauge is the PCE price index excluding food and energy. In April, that core inflation measure was 1.6% above the year-ago level, after edging up to a yearly pace of 1.7% in March, from 1.6% in February. CHICAGO PURCHASING MANAGERS SURVEY Thursday, June 30, 10 a.m. EDT The Chicago-area purchasing managers' index of industrial activity in the Midwest is expected to remain virtually unchanged in June. The median forecast among economists polled by Action Economics is for a reading of 54.3. In May, the index cooled to 54.1, from 65.6 in April, and 69.2 in March. The production and new orders indexes moved lower in May as well. A new orders index reading of 57.9 was the lowest since September of 2003 and down sharply from the April level of 71. Given the importance of the auto industry within the region, weak sales results by U.S. auto makers and plans to cut back light-vehicle production in the third quarter likely had an impact on the May results. HELP-WANTED ADS Thursday, June 30, 10 a.m. EDT The Conference Board releases its May index of help-wanted ads, based on ads gathered from major newspapers across the nation. The national index held at 39 for a second straight month in April. In both February and January the index stood at 41. In April, 2004, the index was 38. The percentage of markets with a rising want-ad volume bounced back to 31% in April, from 10% in March, but remained a bit below the 49% level in February. Overall help-wanted advertising volume grew in only two of nine U.S. regions during the three-month period through April. ------------------------------------------ VEHICLE SALES Friday, July 1 June sales of domestic and imported cars and light trucks are expected to have edged up to an annual pace of 16.8 million vehicles, according to WardsAuto.com. In May, sales retreated to a pace of 16.7 million, after an unexpected surge to a rate of 17.5 million in April. March light-vehicle sales stood at an annual pace of 16.8 million. ISM SURVEY Friday, July 1, 10 a.m. EDT The Institute for Supply Management's June index of industrial activity probably held steady. The consensus estimate from Action Economics is for a May reading of 51.4%. The May ISM index level slipped to 51.4%, from 53.5% in April, and 55.2% in March. While fairly soft compared to readings over the past two years, the current levels still indicate an increase in demand. The new orders index fell to 51.7%, from 53.7% in the prior month and 57.1% in March. The number of respondents reporting that order levels worsened in May jumped to 24%, from 17% in April. The index tracking unfilled orders declined to 51%, from 53% in April. The slowdown in demand is also hurting demand for workers. The ISM employment index stood at 48.8% in May, the first reading below 50% in 18 months. A number below 50% is supposed to indicate that hiring in the factory sector declined during the month. Indeed, the Labor Dept. showed that manufacturing payrolls shrank by 7,000 workers in May. CONSUMER SENTIMENT INDEX Friday, July 1, 10 a.m. EDT The University of Michigan's Survey Research Center will report to its clients its final reading of consumer sentiment for June. News services will then report the index. The median estimate from Action Economics is a reading of 94.5, nearly unchanged from the 94.8 reading for the initial June survey. The final May index level was 86.9, down from 87.7 in April, and 92.6 in March. In the early look at consumer sentiment for June, both the current conditions and future expectations components rebounded. The current conditions index rose to 110.4, after inching up to 104.9 in May, from 104.4 in April. The future expectations index climbed to 84.8, following a fall to 75.3 in the final May report, from 77 in April. Consumers are feeling a bit of trepidation about their financial position. The May results showed that only one-third of respondents thought their financial position would improve in the coming twelve months. That level was close to the April result, which fell to a 10-year low according to the University of Michigan. CONSTRUCTION SPENDING Friday, July 1, 10 a.m. EDT Construction outlays kept on growing during May. The Action Economics consensus estimate is for an increase of 0.5%. Construction spending rose 0.5% in April, after a 0.6% increase during March, and a 1.2% jump in February. Compared to the same period a year ago, construction outlays were up by 8.2%, a bit slower than the yearly clip of the past few months. Private construction spending grew 0.8% compared to a 0.4% drop in outlays by governments. While residential construction remained quite healthy with a 0.6% increase in April, spending on commercial and office structures was particularly strong during the month.  By James Mehring
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2005, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
