Vital Signs for the Week of Nov. 15


Not too long ago, economists were talking about the fourth quarter turning into another soft patch for the economy. High oil prices, weak job growth, slower economic growth abroad, Iraq, and other factors were expected to collectively weigh on the U.S. economy. Half way through the final quarter, however, conditions are looking pretty good.

Perhaps it was a post-hurricane bounce, but October data has surpassed consensus estimates. After a stellar employment report, the October numbers on retail sales were fairly positive. The headline figure, which rose by 0.2%, was in line with the Action Economics consensus forecast. Excluding the 2.2% drop in autos, sales were up a better-than-expected 0.9%.

It's important to note that higher gasoline prices actually helped the numbers in October, with gasoline stations reporting a 4.3% jump in sales. The Commerce Dept. report tracks sales in dollars, not quantity. Strip out autos and gasoline, which account for about one-third of the total, and the remaining areas still registered a 0.5% gain.

For the rest of the quarter, consumers look to be in good shape. The strong October labor report bodes well. Even if job growth posts more modest gains in the remaining two months, the October increase of 367,000 and upward revisions to September and August totals provide a nice boost. More jobs and healthy income growth should provide some momentum for household spending heading into the holiday season.

The latest consumer sentiment numbers from the University of Michigan, which rose from 91.7 to 95.5 in the preliminary November report, is also a plus. Indeed, the weekly reports on retail sales turned positive in the first week of November.

The manufacturing sector is expected to get back on track in October. According to economists surveyed by Action Economics, industrial output rose by 0.4% in October, after a lackluster 0.1% rise in September. The October national factory activity survey from the Institute for Supply Management showed a small decline. But new orders picked up, even those from abroad.

Recently, regional factory activity surveys have been mixed. The latest reports from the Philadelphia and New York Fed banks may help clarify the outlook for manufacturers during the fourth quarter.

Two other big surprises of late have been the recent decline in oil prices and the better-than-expected September trade figures. Both could remain quite volatile in the coming months, but the latest figures are positive. The September trade deficit narrowed to $51.6 billion and the level of exports climbed to $97.5 billion.

Economists expect the easing in oil imports during September will reverse in October. If so, it would likely push the trade gap higher. But exports may be more important. Through September, exports of goods and services are up 13.1% from the same period last year. Additional increases in exports would be a sign that prior declines in the dollar are having an impact on trade. The trend could be enhanced by the recent slide the dollar has taken against the euro, yen, and Canadian dollar, among others.

Only time will tell if oil or another factor will flare up and slash growth in the fourth quarter. Right now, it appears the economy may provide a positive surprise.

Here's the weekly economic calendar.

EARNINGS REPORTS

Monday, Nov. 15

Lowe's, Tyson Foods, and more.

EMPIRE STATE MANUFACTURING SURVEY

Monday, Nov. 15, 8:30 a.m. EST

The New York Federal Reserve Bank will release its November survey of business conditions for manufacturers in the New York Fed district. According to the median forecast of economists surveyed by Action Economics, the headline manufacturing activity index probably moved up to 20.5. The October survey showed a decline to 17.4, from 27.3 in September, but remained above the 13.2 reading of August.

Many of the indexes fell during October. The new orders index dropped to 21.2, from 26.2. However, the percentage that reported an increase in orders was little changed. Rather, the percentage reporting a fall in orders moved higher, as those stating order levels were the same slipped. The shipments index fell, while unfilled orders turned negative for the second time in three months, declining to -2.7. The October results appear to indicate that factories are finally catching up with demand. Earlier this year, backlogged orders were steadily growing.

Expectations for the coming six months remain quite bright. The general business conditions index came in at 61.3, from 62.4 in September, and 48.1 in the prior period. The new orders and employment indexes improved, while the shipments and unfilled orders indexes eased slightly.

MEETING OF NOTE

Tuesday, Nov. 16, 8:45 a.m. EST

Federal Reserve Bank of Chicago President Michael Moskow discusses the U.S. economic outlook at the Chicagoland Chamber of Commerce Annual Economic Forecast Breakfast in Chicago.

1 p.m. EST

Federal Reserve Bank of Philadelphia President Anthony Santomero speaks about the U.S. economic outlook at Carnegie Mellon University's Business Outlook Conference in Pittsburgh (Pa.).

EARNINGS REPORTS

Hewlett-Packard, Home Depot, JC Penney, Nordstrom, Staples, TJX Companies, Wal-Mart Stores, and more.

ICSC-UBS STORE SALES

Tuesday, Nov. 16, 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 Nov. 13. In the week ended Nov. 6, seasonally adjusted sales bounced back up by 1.3%, after declines of 0.3% in the prior period, 0.6% in the week ended Oct. 23, and 0.2% in the period ended Oct. 16.

PRODUCER PRICE INDEX

Tuesday, Nov. 16, 8:30 a.m. EST

Producer prices for goods and commodities sold by U.S. businesses are expected to have accelerated due to higher energy prices. The consensus among economists surveyed by Action Economics is for a 0.5% increase in the prices of finished goods during October.

Over the prior four months, prices have been moving back and forth. In September, the index rose 0.1%, after falling 0.1% in August, nudging up 0.1% in July, and easing 0.1% in June. Based on the October forecast, producer prices would be 3.1% higher than a year ago, after holding at 3.3% in September.

Excluding food and energy costs, core prices probably increased 0.1%. During September, core producer prices grew 0.3%, after a 0.1% slip in August, and a 0.1% gain in July. Based on the October forecast, core producer prices would decline to a pace of 1.5% from a year ago, after rising by 1.9% from a year ago in September.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Nov. 9, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the second fiscal week of November, ending Nov. 13. In the first week ended Nov. 6, sales were up 0.2%. During the full month of October, sales were down 0.6% compared with September.

HOME BUILDERS SURVEY

Tuesday, Nov. 16, 1 p.m. EST

The National Association of Home Builders and Wells Fargo bank will release their monthly survey results for November. The report updates housing market conditions by measuring builders' assessments of current sales, buyer traffic through model homes, and expected demand. In October, the activity index rallied to 72, after slipping to 67 in September, from 71 in August.

Expectations for sales in the coming six months has greatly improved. The October reading came in at 84, from 75 in September, and 78 in August. The index tracking prospective buyer traffic inched up to 54, from 52 in September. The index of single-family home sales also improved, reaching 78 in October, from 73 in the previous period.

The overall reading remains quite solid. Homebuilders are on track for a record year. Robust demand and few signs that the Federal Reserve is considering a path of aggressive interest rate action have homebuilders expecting a strong 2005 as well.

MEETING OF NOTE

Wednesday, Nov. 17, 3:30 a.m. EST

U.S. Treasury Secretary John Snow makes remarks at the Chatham house in London.

11 a.m. EST

Federal Reserve Bank of Cleveland President Sandra Pianalto gives a speech entitled, "Building a Future as Bright as Our Past," at the Say Yes to Cleveland Conference in Cleveland (Ohio).

11 a.m. EST

Federal Reserve Board Governor Edward Gramlich discusses current fiscal issues at Hartwick College in Oneonta (NY).

EARNINGS REPORTS

Applied Materials, Big Lots, Intuit, Medtronic, and more.

MORTGAGE APPLICATIONS

Wednesday, Nov. 17, 7 a.m. EST

The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Nov. 12. In the week ended Nov. 5, the purchase index held at a firm 483, after surging to 496.5 in the week ended Oct. 29, from 440.9 in the week ended Oct. 22. The latest reading of the four-week moving average climbed to 470.5, from 458.8 in the prior period.

The average rate on a conventional 30-year mortgage, according to HSH Associates, moved up to 5.8% in the week ended Nov. 5, from 5.77% during the week of Oct. 29.

The refi index retreated to 2148.7, after climbing to 2303.9 in the previous week, from 2233.8 in the week ended Oct. 22. The gain pushed the refi index four-week moving average to 2210.4, from 2160.5 over the period ended Oct. 29.

CONSUMER PRICE INDEX

Wednesday, Nov. 17, 8:30 a.m. EST

Consumer prices for all goods and services are forecast to have increased by 0.4% during October. That's the median estimate among economists surveyed by Action Economics. The October gain will be driven largely by higher energy prices. In September, consumer prices increased 0.2%, after a 0.1% rise in August, and a 0.1% slip in July. With the forecasted gain in October, inflation would bounce back to a rate of 3% from a year ago, from 2.5% in August and 2.7% in July.

Excluding the more volatile energy and food items, prices probably rose by 0.1%, following a 0.3% gain in core inflation over September, and three consecutive months of 0.1% rises. The yearly rate of core inflation would hold at 2% in October, based on the expected monthly October gain. In September, the yearly rate rose to 2%, from 1.7% in August.

NEW RESIDENTIAL CONSTRUCTION

Wednesday, Nov. 17, 8:30 a.m. EST

The housing market isn't losing any steam yet. Housing starts most likely picked up to an annual pace of 1.96 million in October. That's the consensus forecast of economists surveyed by Action Economics. The number of September starts eased to a pace of 1.9 million, from 2 million in August.

REAL EARNINGS

Wednesday, Nov. 17, 8:30 a.m. EST

Inflation-adjusted weekly earnings of production workers probably edged down 0.1% during October. The October employment report's figures showed a 0.3% rise in average weekly earnings and economists are forecasting a 0.4% increase in the consumer price index for the same period. In September, inflation-adjusted earnings were unchanged, following a 0.2% rise in August, and a 1% gain in July. Compared with the same period a year ago, real earnings in September were up 0.6%. The latest yearly pace is the highest since November of 2003.

INDUSTRIAL PRODUCTION

Wednesday, Nov. 17, 9:15 a.m. EST

U.S. industrial output probably accelerated in October. The consensus estimate among economists surveyed by Action Economics is for a 0.4% gain. Output expanded by 0.1% in September, after a 0.1% fall in August, and a 0.7% jump in July. The average operating rate for all industries probably rebounded to 77.4%, after holding at 77.2% in both August and September. As factory activity keeps expanding, capacity utilization should keep increasing.

Just like the labor market, factory output was most likely affected by the severe September hurricanes. Oil related categories showed a large monthly decline. However, weaker auto output also weighed on overall output, with vehicle-related production off 0.5% on the month.

Other figures indicate that business investment remains healthy. Overall production of business equipment rose 0.3%, after a 1.2% drop in August. The latest increase was fueled by high-tech gear, which grew by 1% in September. Output of machinery and metal products also showed small gains.

As of late, rising demand has also prompted some capacity expansion. In September, industrial capacity grew by 1.5% from a year ago. In the spring, the industrial sector was adding capacity as the slowest rate since late 1988, growing at a yearly pace of 1.1%.

MEETING OF NOTE

Wednesday, Nov. 17, 3:30 a.m. EST

U.S. Treasury Secretary John Snow holds a press conference following meetings with finance ministers from the Czech Republic, Hungary, Poland, and Slovakia in Warsaw, Poland.

EARNINGS REPORTS

Thursday, Nov. 18

Autodesk, Barnes & Noble, Gap, Limited Brands, Novell, Walt Disney and more.

JOBLESS CLAIMS

Thursday, Nov. 18, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Nov. 13 probably held at 330,000, according economists surveyed by Action Economics. Jobless claims barely budged as the reading for the week ended Nov. 6 came in at 333,000. In the prior week, initial claims eased to 331,000, from 350,000 over the week ended Oct. 23.

The four-week moving average dropped to 336,000, from 341,500 in the period ended Oct. 30. In the week of Oct. 30, continuing jobless claims nudged up just above the 2.8 million level.

LEADING INDICATORS

Thursday, Nov. 18, 10 a.m. EST

The Conference Board's composite index of leading economic indicators for October probably slipped 0.1%, according to the consensus forecast from Action Economics. The index has declined for four straight months. In September, it eased by 0.1% following two consecutive declines of 0.3%, and a 0.1% drop over June. Based on the October forecast, the index would be about 1.6% above the year ago reading. Since the 4.9% increase in April, the yearly rate has steadily fallen. In September, the index was up 2% from a year ago.

PHILADELPHIA FED SURVEY

Thursday, Nov. 18, 12 p.m. EST

The Philadelphia Federal Reserve Bank will release its November survey of business conditions for the mid-Atlantic region. Economists queried by Action Economics are forecasting a decline in the index of general business conditions to 24. The October reading stood at 28.5, after sinking to 13.4 in September, from 28.5 in August, and 36.1 in July.

Like the New York Fed's report, factories still report healthy demand but show signs that production has finally caught up with orders. The new orders index eased to 24.6, from 26.4 in September. Meanwhile, the unfilled orders index dropped to -5.4, the first negative reading since May of 2003, from 3.1 in October, and 2.1 in August.

Respondents in the Philly Fed's district had a collected readjustment in their outlook for the coming six months. The general business activity index fell to 27.6 in October, from 44.9 in September. The latest number is the lowest since February of 2003. Nonetheless, manufacturers said they still expect new orders will remain strong and unfilled orders should turn higher.

MEETING OF NOTE

Friday, Nov. 19, 8:30 a.m. EST

Federal Reserve Board Chairman Alan Greenspan, European Central Bank President Jean-Claude Trichet, Bank of Japan Deputy Governor Iwata, and Deutsche Bank chief executive Josef Ackerman participate in a panel discussion on the euro in Franfurt.

9:15 a.m. EST

Federal Reserve Bank of Chicago President Michael Moskow gives the opening remarks at the Chicago Fed's Job Loss Conference in Chicago.

9:30 a.m. EST

Federal Reserve Bank of Cleveland President Sandra Pianalto gives the opening remarks at the Cleveland Fed's Research Conference on Education and Economic Development in Cleveland.

2 p.m. EST

Federal Reserve Bank of Minneapolis President Gary Stern speaks about the U.S. economy before the Downtown Minneapolis Rotary in Minneapolis, Minnesota. By James Mehring


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