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How fast did the economy grow in the first quarter? In the past few weeks, economists have seemingly had a race to the top, with some forecasting an annualized growth rate of 6% for the January to March period. According to the median forecast of economists surveyed by Action Economics, growth most likely came in at 5%.
If the Commerce Dept. report meets expectations, it will be a strong confirmation that second half growth of 6% in 2003 was not an aberration. However, GDP figures are backward looking. Once the report comes out, the hot topic will be how fast the economy can keep growing.
The latest figures seem to indicate there's more of the same in store. The Apr. 23 report on durable goods orders showed a 3.4% jump in new orders, after an upwardly revised increase of 3.8% for February. That's good news after the Federal Reserve reported March industrial production slipped 0.2%. With new orders on the rise and the level of unfilled orders also increasing -- backlogged orders for durable goods were up 0.8% in both March and February -- a rebound in factory output appears certain. The Chicago purchasing manager's index will provide another glimpse of just how good manufacturers feel about business prospects.
The primary economic driver for 2004 is expected to be the corporate sector. As companies feel more confident and if demand remains robust, inventory accumulation should soon accelerate, giving a boost to economic growth this quarter. A rise in capital investment is also anticipated during this year. A bonus depreciation deduction of 50% on capital equipment purchased this year should provide some additional, if small, incentive for some businesses to increase investment spending.
Perhaps the biggest key is whether companies will hire at the same pace they did in March. Indeed, strong job growth close to the gain of 308,000 in March will be important in fueling consumer spending.
Testimony from Federal Chairman Alan Greenspan appeared to prepare the markets for rate hikes. That will crimp mortgage refinancing, a big source of cash for consumers during the recovery. Indeed, the Mortgage Bankers Assoc.'s index of refinancing activity has dropped by nearly 50% over the past month. In addition, the billion of dollars in tax refunds households will most likely have its biggest impact in the current quarter with a diminishing effect in the second half.
That will leave job growth as the best way to keep consumer spending growing. Large scale hiring will obviously give more people steady incomes. In addition, it will help soak up the excess capacity that remains in the labor force. This slack is one reason wage growth for those already employed has softened. Employment costs rose at a yearly clip of almost 4% in the fourth quarter, but a large chunk of that increase was due to higher benefit expenses.
The yearly pace of wages and salaries for workers stood at 2.9% in the fourth quarter, from a recent peak of 4% in the third quarter of 2000. Benefit expenses rose 6.3% from a year ago. That 2.9% growth in wages is still outpacing inflation, implying consumers have some room to buy more goods and services, but adding new jobs would surely go a long way in keeping economic growth close to its current pace.
Here's the weekly economic calendar.
MEETING OF NOTE
Monday, Apr. 26, 11:10 a.m. EDT
Federal Reserve Bank of Chicago President Michael Moskow gives opening remarks at the Chicago Fed's "Five Years on the Euro: Successes and New Challenges" conference in Chicago.
5:10 p.m. EDT
European Central Bank Chief Economist Otmar Issing gives the keynote address at the Chicago Fed's "Five Years on the Euro: Successes and New Challenges" conference.
Chubb, Entergy, Exelon, First Energy, NiSource, Pitney Bowes, Pulte Homes, Zimmer Holdings, and more.
NEW RESIDENTIAL SALES
Monday, Apr. 26, 10 a.m. EDT
New single-family homes sold in March probably stayed virtually unchanged at an annual rate of 1.17 million units. That's the consensus forecast of economists surveyed by Action Economics. In February, home sales climbed to annual rate of 1.16 million, from 1.1 million in January, and 1.11 in December.
The housing market looks set to turn in another strong year. Just how well it performs will depend on interest rates and the job market. When the Fed begins to raise rates the housing market may start to gradually slow. While home sales may not be as sensitive as to rising interest rates as refinancings, it is likely to have some dampening effect.
MEETING OF NOTE
Tuesday, Apr. 27, 12:30 p.m. EDT
Federal Reserve Bank of Chicago President Michael Moskow gives opening remarks at the Midwest Manufacturing conference in Chicago.
12:30 p.m. EDT
Federal Reserve Board Chairman Alan Greenspan speaks at a luncheon of the Center for Strategic and International Studies "U.S.-Saudi Relations and Global Energy Security" conference in Washington, D.C.
Agere Systems, Baker Hughes, Cinergy, Knight-Ridder, Marathon Oil, Maxim Integrated Products, McGraw-Hill, Medco Health Solutions, Monster Worldwide, Nabors, Network Associates, T. Rowe Price Group, Thomson, United States Steel, and more.
ICSC-UBS STORE SALES
Tuesday, Apr. 27, 7:45 a.m. EDT
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. 24. In the week ended Apr. 17, seasonally adjusted sales grew another 1%, after rising by 0.8% in the prior week, and a 0.3% gain for the week ended Apr. 3.
INSTINET REDBOOK RESEARCH STORE SALES
Tuesday, Apr. 27, 8:55 a.m. EDT
This weekly measure of retail activity will report on sales for the third fiscal week of April, ended Apr. 24. During the first two weeks, ended Apr. 17, sales were off 2.2% from the same period in March. Cool and inclement weather was was blamed for the weak performance. Part of the monthly dip may also be due to the Easter holiday. For the full month of March, store sales ended up 0.4% compared with February.
CONSUMER CONFIDENCE INDEX
Tuesday, Apr. 27, 10 a.m. EDT
The Conference Board's index of consumer confidence for April is expected to have held at 88.3, according to economists surveyed by Action Economics. In March, consumer confidence slid to 88.3, from 88.5 in February, and 97.7 the month before.
The April reading would appear to have some upward risk. What has dampened consumer confidence the most is the job market. However, if the March report of 308,000 new jobs is truly an indication of a labor market rebound, consumers may soon change their perspective. In the March survey, the percentage of respondents who believe more jobs would become available in the coming six months slipped to 15.7%, from 16.4% in February. At the same time, fewer respondents thought there would be a decline in available jobs over the same period.
EXISTING HOME SALES
Tuesday, Apr. 27, 10 a.m. EDT
Existing home sales during March most likely improved to an annual rate of 6.18 million, say economists queried by Action Economics. In February, sales rose to an annual rate of 6.12 million, from 6 million in January.
Wednesday, Apr. 28
AES, Air Products and Chemicals, Amerada Hess, Boeing, ConocoPhillips, DTE Energy, Dynegy, Encana, FirstEnergy, Halliburton, Janus Capital Group, Kerr-McGee, LSI Logic, Murphy Oil, PPL, TECO Energy, Time Warner, Unocal, Xcel Energy, Comcast, QLogic, and more.
Wednesday, Apr. 28, 7 a.m. EDT
The Mortgage Bankers Assoc. releases its tally of mortgage applications for both home buying and refinancing for the week ending Apr. 23. In the week ended Apr. 16, the purchase index inched up to 434.1, from 432.2 in the week ended April 9, but remained below the 477.5 reading in the week ended Apr. 2. The latest reading of the four-week moving average through Apr. 16 fell to 446.9, from 450.6 in the week ended Apr. 9.
The average rate on a conventional 30-year mortgage, according to HSH Assoc., rose to 5.99% in the week ended Apr. 16, from 5.9% in the week ended Apr. 9.
The refi index tumbled to 2550.3 in the week ended Apr. 16, from 2861.6 in the week ended Apr. 9, and 4126.7 in the prior period. The refi index four-week moving average also tumbled for a second straight week. For the period ended Apr. 16, the four-week average sank to 3599.1, from 4208.7 over the prior week.
After interest rates lingered at such low levels for many months, the market for refinancing will shrink rapidly as rates rise. And the latest testimony before Congress by Alan Greenspan is likely to put additional downward pressure on the refi market. Indeed, the yield on the 10-year Treasury bond surged to its highest level since early September, 2003, following Greenspan's testimony on Apr. 20.
MEETINGS OF NOTE
Friday, Apr. 28, 12 p.m. EDT
Canada's Prime Minister Paul Martin Jr. speaks at a Center for Global Development conference in Washington, D.C.
Thursday, Apr. 29
Alliance Capital Management, Metro-Goldwyn-Mayer, Cox Communications, Duke Energy, Eastman Chemical, Exxon Mobil, Gateway, International Steel Group, McKesson, NCR, Newell Rubbermaid, Northeast Utilities, Premcor, Raytheon, Sempra Energy, Southern Co., and more.
GROSS DOMESTIC PRODUCT
Thursday, Apr. 29, 8:30 a.m. EDT
The advanced report on economic growth for the first quarter of 2004, measured by real gross domestic product, is expected to show the economy expanded by a seasonally adjusted annual rate 5%. That's according to economists surveyed by Action Economics. The economy expanded by 4.1% in the fourth quarter of last year, after an 8.2% jump in the third quarter, and more moderate growth of 3.1% in the second quarter.
The latest estimate of first-quarter GDP is a little stronger than earlier expectations. Consumer spending is expected to post a solid gain for the period. Business spending and the rebuilding of inventories should also contribute to first-quarter growth. It would mark the second straight period inventory accumulation boosted GDP, after weighing on growth in the previous four periods. Trade deficit figures over the first two months indicate net trade is likely to be a negative on first-quarter GDP.
EMPLOYMENT COST INDEX
Thursday, Apr. 29, 8:30 a.m. EDT
The cost of wages, salaries, and benefits probably accelerated during the first quarter. The consensus forecast of economists surveyed by Action economics is a 0.9% rise in the first three months of the year. Even with the forecast pickup in first-quarter compensation costs, the yearly rate would slow to 3.5%, from 3.9% in the fourth quarter. The employment cost index rose 0.7% in the final quarter of 2003, after a 1% jump during the third quarter, and a 0.9% increase in the second period.
Employer benefits such as health care premiums are far outpacing wage and salary gains. The Labor Dept. reported that benefit costs, which make up 30% of overall compensation costs, accounted for more than half of the overall 0.7% fourth-quarter increase. The rise in benefit costs are at levels not seen since the early nineties, coming in at a 6.3% yearly pace in the fourth quarter of 2003, from a 6.5% rate in the third quarter.
Indeed, the rapid rise in employee benefit costs may be holding back employment and wage gains. In the latest Federal Reserve Beige Book report, respondents in the Dallas and Kansas City Federal Reserve Banks reported that high benefit costs continued to discourage some businesses from hiring new employees. In addition, some employers within the San Francisco Fed region said that increasing costs for health benefits are being passed along to workers.
Thursday, Apr. 29, 8:30 a.m. EDT
First-time claims for jobless benefits for the week ended Apr. 24 most likely fell to 344,000. That's the consensus of economists surveyed by Action Economics. Jobless claims eased to 353,000 in the week ended Apr. 17, after jumping to an upwardly revised 362,000, in the week ended Apr. 10. The recent levels have pushed the four-week moving average to 347,000 for the week ended Apr. 17, from 344,800 in the prior period.
The Easter Holiday may still be affecting the latest reading. Due to the variable nature of the holiday, it is hard to make proper seasonal adjustments. During the week ended Apr. 10, continuing jobless claims slipped back above the 3 million level, to 3.02 million, from 2.97 million in the week ended Apr. 3.
HELP WANTED ADS
Thursday, Apr. 29, 10 a.m. EDT
The Conference Board releases its March index of help-wanted ads, based on ads culled from major newspapers across the nation. In February, the index inched up to 40, from an upwardly revised reading of 38 in January, and 37 in December. The February reading was the same as a year ago.
Other aspects of the monthly report were more optimistic. During the three-month period through February, help-wanted ads improved in eight of nine U.S. regions. In addition, 67% of the labor markets surveyed showed growing want-ad volume, compared with 57% in January, and 29% in December.
MEETINGS OF NOTE
Friday, Apr. 29
U.S. President George W. Bush meets Canada Prime Minister Paul Martin Jr. to review bilateral issues at the White House in Washington, D.C.
12:30 a.m. EDT
Federal Reserve Bank of San Francisco President Robert T. Parry speaks on "Globalization: Threat of Opportunity for the U.S. Economy?" at a dinner in his honor in Honolulu, Hawaii.
Alliant Energy, Anadarko Petroleum, Avon Products, ChevronTexaco, Cigna, Procter & Gamble, Washington Post, Winn-Dixie Stores, and more.
PERSONAL INCOME AND CONSUMER SPENDING
Friday, Apr. 30, 8:30 a.m. EDT
March personal income probably rose by 0.3%, say economists surveyed by Action Economics. In February, personal income rose 0.4%, following an increase of 0.3% in January. Using the March forecast, yearly personal income probably grew at a respectable 4.5% clip, after rising by 4.6% in each of the prior two months.
Consumer spending on goods and services most likely improved by 0.7% in March, after growing 0.2% in February, and 0.5% in January. The expected gain for March would put yearly consumer spending at 5.6%, vs. 5.8% in January.
First-quarter spending looks like it will be stronger than the last period in 2003. Chain store sales in March were even better than February, March retail sales surged 1.8%, and vehicle sales are picking up.
CONSUMER SENTIMENT INDEX
Friday, Apr. 30, 9:45 a.m. EDT
The University of Michigan's Survey Research Center will report its final index reading of consumer sentiment for April. The median forecast of economists surveyed by Action Economics is 93.9. That would be a small improvement from the 93.2 registered in the preliminary April survey, but still below the final March level of 95.8 and February reading of 94.4.
Respondents are saying that the labor market is weighing on consumer sentiment. Even so, the recent readings correspond to a 3.5% increase in consumer spending in the coming twelve months, according to the University of Michigan. Another positive point is that just one in 10 of those surveyed expected their financial situation to worsen in 2004.
CHICAGO PURCHASING MANAGERS SURVEY
Friday, Apr. 30, 10 a.m. EDT
The Chicago-area purchasing managers' April index of industrial activity in the Midwest probably accelerated to 60%, according to the median forecast of economists surveyed by Action Economics. In March, the Chicago index slowed to 57.6%, from the 63.6% in February and the recent peak of 65.9% in January.
The production index component dropped sharply to 59.1%, from 73% in February. However, earlier regional factory surveys for April from the New York and Philadelphia Federal Reserve Banks showed improvements following March declines.
In addition, the January reading of 76.5% was a 20-year high, an unsustainable level. The new orders index fell to 60.4%, from 67.5% in February, still a healthy level. Even with the slowdown in orders, however, the index tracking unfilled orders rose. The reading is an indication that the region's manufacturers are having a tough time keeping up with demand. By James Mehring