Vital Signs for the Week of Apr. 8


Finally! After several months of disappointing employment reports, businesses began hiring in earnest in March. Payrolls increased by 308,000, the biggest monthly rise since April of 2000. The key of course, is that U.S. companies keep hiring.

On top of the cheerier jobs report, the March Institute for Supply Management's manufacturing activity index turned in a surprising increase. Widely expected to show a deceleration in overall activity, the index rose to 62.5%, from 61.4%. In addition to the headline number, the component indexes also showed that the economic recovery is continuing to chug along. If subsequent reports continue to show similar strength, economic prospects for 2004 will be even brighter.

Already, economists believe economic growth in the first half of the year is likely to be a little stronger than the 4.1% annualized rise in fourth-quarter real gross domestic product. Another big gain in jobs come April could prompt some upward revisions to growth forecasts.

Both the ISM factory and non-manufacturing indexes seem to bolster those forecasts. Economists surveyed by Action Economics see the non-manufacturing index staying above the 60% level for a third straight month, a positive sign that the service sector remains upbeat about current conditions. Further indications of how the service sector is doing will come in monthly chain store sales figures for March and the weekly store sales figures.

It's also good news that U.S. businesses are shipping more goods abroad. As of February, the yearly pace of export growth stood at 8.5% in January. Plus, both manufacturers and non-manufacturers report that export orders are still rising. The primary cause is the improving global economic situation. But the weaker U.S. dollar gives many U.S. companies some competitive advantage. Indeed, it appears that U.S companies are both selling more exports and slowly increasing the prices of those goods. In February, export prices were up 2.4% from a year ago, after slowing to a yearly pace of 0.9% in August.

Better demand and a brighter economic outlook may also push businesses to pick up their inventory rebuilding plans. If companies think that the faster pace of growth will last, they may want to have larger inventory levels to meet the impact of demand or supply shocks. While the inventory component of the national factory survey came in below 50%, implying falling levels of inventories, the ISM states levels consistently above 42% correspond to rising inventories as reported by the Commerce Dept.

Indeed, factories appear to be restocking, with durable goods inventories up 0.5% in February. The February wholesale trade data could indicate whether or not a broader range of companies are beginning to restock at a faster clip.

If businesses ramp up inventory rebuilding, add more workers, and reap the benefits of improving economic growth elsewhere, then all the fundamentals would appear to be in place for a solid and sustainable rebound.

Stock and bond markets will be closed on Friday in observation of Good Friday.

Here's the weekly economic calendar.

ISM NON-MANUFACTURING SURVEY

Monday, Apr. 5, 10 a.m. EST

The Institute for Supply Management releases its February index of business activity in the mostly services, non-manufacturing sector. According to the median forecast of economists surveyed by Action Economics, the March index probably inched up to 61%, from 60.8% in February. In January, the index hit a record high of 65.7%.

Most of the components also indicated slower rates of increases. The new orders component eased to 60.3%, from 64.9% in January. Indexes tracking the backlog of orders, new orders, and employment all easily remained above 50%, the inflection point between a rise or fall, but were a little lower than in February.

ICSC-UBS STORE SALES

Tuesday, Apr. 6, 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 Apr. 3. In the week ended Mar. 27, seasonally adjusted sales plunged 1.9%, after a 0.2% increase over the week ended Mar. 20, and a 0.5% rise over the prior period.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Apr. 6, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the fifth and final fiscal week of March, ended Apr. 3. Through the first four weeks ended Mar. 27, store sales were up 0.1%. It was an improvement compared with the period covering the first three weeks, when sales were off 0.2% vs. the same period in February. For the entire fiscal month of February, sales were up by 1.2% from January.

MEETING OF NOTE

Tuesday, Apr. 6, 12 p.m. EST

Federal Reserve Bank of St. Louis President William Poole speaks to business leaders and faculty members at the University of Arkansas-Little Rock on "Inflation Signals and Inflation Noise."

MORTGAGE APPLICATIONS

Wednesday, Apr. 7, 7 a.m. EST

The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Apr. 2. In the week ended Mar. 26, the purchase index slipped to 443.8, from 448.9 in the previous week, and 452.4 over the week ended March 12. The latest reading of the four-week moving average through Mar. 26 hit 443.4, from 438.1 over the week ended Mar. 19. The average rate on a conventional 30-year mortgage, according to HSH Associates, nudged up to 5.56% in the week ended Mar. 26, from 5.55% over the week ended Mar. 19.

The refi index softened, after rising for six straight weeks. For the week ended Mar. 26, the refi index eased to 4857.6, from 4988.7 in the week ended Mar. 19, and 4983.7 during the previous week. The refi index four-week moving average kept climbing, standing at 4599.4, from 4268.1 in the previous week.

IMPORT AND EXPORT PRICES

Wednesday, Apr. 7, 8:30 a.m. EST

Import prices in March are forecast to have increased by 0.6%, say economists queried by Action Economics. In February, import prices rose by 0.4%, following a 1.5% jump in January, after a 0.6% increase in December. Excluding petroleum imports, February import prices still rose 0.4%, following a 0.8% jump in January.

Export prices probably increased by 0.4%, after rising by 0.6% in both February and January. Given the March forecast, export prices would be up 2.6% from a year ago, from 2.4% in both February and January, and a recent yearly low of 0.9% in August.

CONSUMER INSTALLMENT CREDIT

Wednesday, Apr. 7, 3 p.m. EST

Consumers most likely accumulated another $8 billion in debt in February. That's the consensus of economists surveyed by Action Economics. Total credit outstanding surged by $14.3 billion in January, following an $8.3 billion rise in December. Non-revolving debt, which includes auto loans, has been growing much faster than revolving debt over the past few months. In January, non-revolving credit grew by $8.9 billion, while revolving debt was up by $5.3 billion.

Although consumers are taking on debt at a faster pace, it shouldn't weigh on household balance sheets as much as in the past. According to fourth-quarter figures from the Federal Reserve (the latest data available), interest rates are generally near historic lows. Indeed, an average rate on a 4-year loan for a new car stood at 6.82%, just up from the historical low of 6.72% in the third quarter. A 2-year personal loan came in at 11.97%, just a little above the record low 11.7% posted in the first quarter of last year.

MEETING OF NOTE

Thursday, Apr. 8, 4 p.m. EST

Federal Reserve Board Vice Chairman Roger Ferguson gives an update on the U.S. economic outlook in San Francisco.

CHAIN STORE SALES

Thursday, Apr. 8

The International Council of Shopping Centers will release its March same-store sales figures for major U.S. chain retailers. In February, receipts increased by a surprisingly strong 6.7% from a year ago. The February reading was helped by the extra shopping day due to leap year. Some retailers also credited a warming weather which helped in selling spring clothing. In December, sales posted a healthy 4% gain, following a November gain of 3.6%.

JOBLESS CLAIMS

Thursday, Apr. 8, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Apr. 3 probably slipped to 340,000. That's the consensus of economists surveyed by Action Economics. Jobless claims remained low, at 342,000 in the week ended Mar. 27, after rising to an upwardly revised 345,000, in the week ended Mar. 20. The four-week moving average held steady at 340,300 for the week ended Mar. 27, after falling for four consecutive weeks.

During the week ended Mar. 20, continuing jobless claims moved up slightly, to 3.06 million. In the week ended Mar. 13, the continuing claims dipped to 3.03 million, from 3.08 million in the prior period.

PRODUCER PRICE INDEX

The Bureau of Labor Statistics says the producer prices of finished goods report has been delayed for March. Up to this point, the Labor Dept. is playing catch-up, publishing its February data on Apr. 1. According to the BLS, the delays are the result of difficulties earlier this year in the conversion of PPI data from the Standard Industrial Classification system to the North American Industry Classification System. The March data originally scheduled for Apr. 8 will be delayed. Its scheduled release will be announced as soon as possible.

In February, producer prices rose 0.1% and were up 2.1% from a year ago. In January, the monthly gain was 0.6%, while the yearly rise stood at 3.3%. Beyond February, the yearly rate could jump if current oil prices continue to linger near $35, a pretty strong likelihood with OPEC pledging to cut oil production. During March, 2003, oil prices retreated from a high of $37 down to $31, and continued to slide until the end of April. Prices for energy-related goods tumbled to a yearly increase of 3.8% in February, from 11.3% in January.

Excluding food and energy costs, core prices in February also rose by 0.1%, following a 0.3% gain in January. The yearly pace of core producer prices picked up to 1.0%, from 0.9% in January.

WHOLESALE SALES AND INVENTORIES

Thursday, Apr. 8, 10 a.m. EST

Wholesale sales most likely grew 0.4% in February, say economists queried by Action Economics. In January, sales increased by 0.6%, following a 1.5% surge in December. Based on the February forecast, sales likely slowed to an annual pace of 7.4%, from 7.6% in January.

Meanwhile, January inventories, up 0.1%, rose at the slowest clip since last August. In December, wholesalers increased inventories by 0.6%, after a 0.3% rise in November.

For the fourth quarter, wholesale inventories rose by an annualized 4.7%. Based on the February forecast inventory accumulation is likely to be a little slower this quarter. That will have a negative effect on gross domestic product, but it shouldn't be significant. By James Mehring


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