Vital Signs for the Week of Mar. 22


The latest figures for the seemingly indefatigable housing market figure prominently this week. According to the consensus forecast of economists surveyed by Informa Global Markets new home sales are expected to ease, while existing home sales are forecast to rebound.

Heading into 2004, new- and existing-home sales were coming down from record monthly highs set during the summer. Harsh winter weather also dented January sales. However, with spring around the corner both new and existing home sales should warm up with the temperatures. That's especially likely given the rising sentiment that the Federal Reserve won't touch interest rates this year. As the consensus on that has firmed, bond and mortgage rates have turned lower once again. According to HSH associates, the average 20-year mortgage fell to 5.53% in the week ended Mar. 12.

While there's still some weather-related risk to the February sales forecasts, other data show housing is ready to pick up. Mortgage activity has accelerated. Mortgage applications for homebuying have steadily improved since early February. The National Association of Home Builders did report a pickup in prospective homebuyer traffic, and the index tracking home purchases for the Mar. survey came in at a good, albeit slightly lower, level. And on Mar. 18, Freddie Mac forecast that the combined tally of new- and existing-home sales could hit 7.3 million in 2004, following record sales of 7.19 million in 2003.

Surpassing last year's sales would be quite a feat. However, the forecast illustrates that housing is unlikely to fall on hard times anytime soon. Ironically, that's due in part to the weak employment data over the past few months. Despite other figures, such as the latest fall in initial jobless claims, the Labor Dept.'s disappointing reports have convinced many economists to push out their forecasts for the Fed's first rate hike to 2005. The key assumption is the central bank won't take action until the labor market shows it's back on track.

But what if businesses start hiring on a large scale sooner rather than later? Well, it's not all bad news for housing either. Interest rates could turn abruptly higher, and housing sales would likely slow. However, job growth would also mean stronger personal income growth. Right now, income is rising at a respectable yearly rate of 4.1%. That would likely accelerate if employment takes a turn for the better.

More jobs and greater personal income would help to somewhat offset any interest rate-related slide in sales. Surely, the continued weakness in the labor market would likely help housing only in the short term. Ultimately a weak labor market would be harmful if it meant personal incomes started to turn lower.

Even though 2004 may not be another record year for housing, all the ingredients are in place for another good year.

Here's the week's economic calendar.

MEETING OF NOTE

Monday, Mar. 22, 1:00 p.m. EST

Federal Reserve Bank of Chicago President Michael Moskow speaks on the outlook for the U.S. economy at the monthly meeting of the Risk Management Assn.-Chicago Chapter and the National Funding Association.

MEETING OF NOTE

Tuesday, Mar. 23, 9:00 a.m. EST

Federal Reserve Bank of Minneapolis President Gary Stern speaks on the changing payments landscape at the America's Community Bankers National Operations, Security & Technical Conference in New Orleans.

ICSC-UBS STORE SALES

Tuesday, Mar. 23, 7:45 a.m. EST

This weekly tracking of retail sales, assembled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ending Mar. 20. In the week ended Mar. 13, seasonally adjusted sales rebounded 0.5%, after slipping 0.3% in the prior period, and holding steady over the week ended Mar. 6.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Mar. 23, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the third fiscal week of March, ended the 20th. During the first two weeks ended Mar. 13, store sales were down 0.5%. It was a slight improvement over the first week, when sales were off 0.7% compared to the same period in February. For the entire fiscal month of February, sales were up by 1.2% compared to January.

MEETING OF NOTE

Wednesday, Mar. 24, 10:00 a.m. EST

Federal Reserve Bank of Atlanta President Jack Guynn discusses the outlook for the U.S. economy to the Center for Banking at East Tennessee State University in Johnson City, Tennessee.

10:00 a.m. EST

Federal Reserve Bank of San Francisco President Robert T. Parry speaks at the Annual CEO Roundtable in Portland, Oregon.

6:00 p.m. EST

Federal Reserve Bank of Boston President Cathy Minehan speaks at a dinner held by the Money Marketeers of New York University.

MORTGAGE APPLICATIONS

Wednesday, Mar. 24, 7 a.m. EST

The Mortgage Bankers Assn. releases its tally of mortgage applications for both home buying and refinancing for the week ending Mar. 19. During the period ended Mar. 12, the purchase index moved up to 452.4, from 428.6 over the week ended Mar. 5, and 422.6 over the week ended Feb. 27. The latest reading of the four-week moving average through Mar. 12 grew to 431.8, from 422.2 during the prior week. The average rate on a conventional 30-year mortgage, according to HSH Associates, plunged to 5.53% in the week ended Mar. 12, from 5.70% over the week ended Mar. 5.

The refi index increase for a fifth straight week. During the week ended Mar. 12, it climbed to 4983.7, from 3567.6 during the previous week, and 3532.2 over the week ended Feb. 27. The refi index four-week moving average climbed to 3861.4, from 3440 over the previous period.

DURABLE GOODS ORDERS

Wednesday, Mar. 24, 8:30 a.m. EST

New orders received by manufacturers of durable goods are forecast to have jumped 1.2% in February, say economists surveyed by Informa Global Markets. In January, durable goods orders plunged 2.3%, after climbing 1.7% in December, and a big November fall of 2.4%. Even with the healthy increase forecast for February, first-quarter orders would be off an annualized 5.5%, following an 18.4% jump in the fourth quarter.

However, the headline number is depressed by the volatile transportation industry, more specifically, the aircraft sector. Excluding transportation, new orders were up 1.4% in January. What's more, growing unfilled orders present a strong case that manufacturers will continue to ramp up industrial production, following an upbeat 0.7% increase in February factory output.

NEW RESIDENTIAL SALES

Wednesday, Mar. 24, 10 a.m. EST

New single-family homes sold in February most likely eased to an annual rate of 1.11 million units. That's according to economists queried by Informa Global Markets. In January, home sales came in at an annual rate of 1.11 million, after rising to 1.13 million in December, from 1.11 in November.

MEETINGs OF NOTE

Thursday, Mar. 25, 9:30 a.m. EST

Federal Reserve Bank of New York President Timothy Geithner addresses the Financial Services Forum of the New York Bankers Assn. in New York City.

Federal Reserve Bank of St. Louis President William Poole gives a speech on "Trade, Wages & Employment" at LeMoyne Owen College in Memphis, Tennessee.

11:45 a.m. EST

Federal Reserve Board Governor Donald Kohn discusses monetary policy in transition at a National Association for Business Economics conference in Washington, D.C.

4:45 p.m. EST

Council of Economic Advisers Chairman Gregory Mankiw speaks on the state of the economy and the President's economic policies at a the National Association for Business Economics conference in Washington, D.C.

JOBLESS CLAIMS

Thursday, Mar. 25, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Mar. 20 probably stayed pretty stable at 340,000. That's according to economists surveyed by Informa Global Markets. Jobless claims fell to the lowest level since January of 2001, to 336,000 in the week ended Mar. 13, after easing to an upwardly revised 342,000 in the week ended Mar. 6, from 347,000 in the prior period. However, the most recent number was heavily influenced by schools returning to session in New York following spring break. The four-week moving average fell back to 344,000, from 346,000 in the previous week.

During the week ended Mar. 6, continuing jobless claims bounced back to 3.06 million. In the week ended Feb. 28, claims plunged to 3.02 million, the lowest reading since July of 2001.

GROSS DOMESTIC PRODUCT

Thursday, Mar. 25, 8:30 a.m. EST

The last pass on economic growth for the fourth quarter of 2003, measured by real gross domestic product, is expected to show the economy expanded by a seasonally adjusted annual rate of 4.1%. That's based on the forecast of economists queried by Informa Global Markets. The economy expanded by 8.2% in the third quarter, after growing at more moderate rates of 3.1% and 2.0% in the third and second quarters, respectively.

Heading forward, inventories and foreign trade will be important factors in measuring economic growth this year. The key to abovetrend economic growth for 2004 lies with businesses. As companies feel more confident and if demand remains robust, businesses are expected to accelerate investment and increase inventories. However, a large chunk of demand will be satisfied with imports. If the weaker dollar and improving economic conditions abroad don't boost exports at a faster clip than stronger demand at home is likely to lift imports, foreign trade will only weigh more heavily on GDP.

The final report will also provide data on corporate profits. Aftertax corporate profits, adjusted for changes in inventories and capital depreciation, have been quite strong over the past two quarters. Third-quarter earnings were up 27.5% from the same period a year ago, while second-quarter profits grew 15.1%.

EXISTING-HOME SALES

Thursday, Mar. 25, 10 a.m. EST

Existing-home sales during February most likely improved to an annual rate of 6.13 million, say economists queried by Informa Global Markets. In January, sales softened to an annual rate of 6.04 million, from 6.37 million in December and 6.13 million homes in November.

HELP WANTED ADS

Thursday, Mar. 25, 10 a.m. EST

The Conference Board releases its February index of help-wanted ads, based on ads culled from major newspapers across the nation. In January, the index inched up to 38, from a downwardly revised reading of 37 in December, and 39 in November. The index is once again below its year ago level. The January, 2003 reading was 41.

Other aspects of the monthly report are a little more hopeful. Over the three-month period through January, help-wanted ads improved in seven of nine U.S. regions. The East North Central region -- which includes states such as Michigan, Indiana, and Illinois along with Mountain states such as Colorado -- and the East South Central area which includes states such as Kentucky and Tennessee, showed the best improvements. In addition, 57% of the labor markets surveyed showed growing want-ad volume, compared to 29% in December, and 75% in November.

The latest help-wanted ads readings reflect the tepidly improving job market. "With want-ad volume inching higher through January, the signals are that labor market improvement is continuing to slowly develop," says Conference Board economist Ken Goldstein.

PERSONAL INCOME AND CONSUMER SPENDING

Friday, Mar. 26, 8:30 a.m. EST

Personal income during February is expected to have increased by 0.3% according to economists surveyed by Informa Global Markets. In January it rose 0.2% following an increase of 0.3% in December. Using the February forecast, yearly personal income growth probably held up at a respectable 4.0% clip, from 4.1% in January.

Consumer spending on goods and services most likely grew by 0.4% in February, after growing 0.4% in January and 0.5% during December. The expected gain for February would push yearly consumer spending up to 5.6%, from 5.3% in January. First-quarter spending looks like it will be stronger than the last period in 2003. Chain-store sales during February were good, and February auto sales picked up.

In the short run, consumers should get additional support from the federal income tax returns. So far, the Treasury Dept. reports personal income tax returns are up 10.4% through mid-Mar. this calendar year, compared to the same period a year ago. However, in order to prevent consumer spending from slowing as refunds dry up, job growth will have to accelerate.

CONSUMER SENTIMENT INDEX

Friday, Mar. 26, 9:45 a.m. EST

The University of Michigan's Survey Research Center will report to its clients its final index reading of consumer sentiment for March. News services will then report the index. According to economists queried by Informa Global Markets, the final reading for Mar. will be 93.2, after slipping to 94.1 in the preliminary Mar. reading, from 94.4 in February, and 103.8 in January.

According to the University of Michigan, the labor market has been the biggest factor in moderating consumer sentiment. Minimal job gains, healthy productivity growth, and Presidential candidates focusing on global job outsourcing were given as reasons why consumers feel less optimistic. Even so, "If the economy produces jobs at a more rapid rate in the months ahead, these apprehensions of consumers could quickly fade," says Richard Curtain, Director of the University of Michigan's Survey of Consumers.

MEETING OF NOTE

Saturday, Mar. 27, 9:30 a.m. EST

Federal Reserve Bank of Philadelphia President Anthony Santomero speaks about check clearing at a New Jersey Bankers Assn. meeting in Aventura, Fla.


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