Vital Signs for the Week of Nov. 22


The dollar is dipping again. After falling against major currencies such as the euro, yen, and Canadian dollar in 2002 and 2003, the greenback stabilized this year. However, trade deficits now topping $50 billion and scant sign that the Federal government will reign in spending have renewed the downward pressure on the U.S. currency. Since the end of July, the Federal Reserve's broad trade-weighted dollar index, which covers 26 different currencies, has fallen 4.9%. If the basket is narrowed to just seven major currencies, the change is a steeper 7.4%.

On Nov. 19, Fed Chairman Alan Greenspan warned that ballooning deficits in trade and other financial flows -- summed up as the current account deficit -- will keep putting pressure on the dollar. "It seems persuasive that, given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point. But when, through what channels, and from what level of the dollar? Regrettably, no answer to those questions is convincing. This is a reason that forecasting the exchange rate for the dollar and other major currencies is problematic," said Greenspan.

Traditionally, shifts in exchange rates and trade flows help in rebalancing such deficits. Higher deficits cause investors to worry about a country's ability to finance the shortfalls. These concerns cause investors to pull out or demand a higher rate of return for the perceived increase in risk. In turn, a country's currency falls and/or interest rates rise. If the currency, in this case the U.S. dollar, does fall, then exports should become more attractive to foreigners and imports more costly to Americans.

The sliding greenback should help U.S. exporters, especially manufacturers. Exports of goods rose for a third straight month in September, to a record $68.9 billion. Durable goods orders are expected to grow another 0.5% in October. The October factory activity index from the Institute for Supply Management showed continued strength in foreign orders.

However, America's trend toward a service dominated economy could make any adjustment through trade more difficult. U.S. strengths in the services sector such as media, law, and consulting can be easily exported. However, export opportunities for other services, such as health care, retail, and restaurants, are more limited.

The U.S. does run a trade surplus in services, but the advantage has steadily narrowed since 1997. True, the lower dollar should also give service exports a boost. At the same time, some service industries are facing stronger foreign competition from cheaper and well-educated workers in Asia and Eastern Europe. The trend by U.S. companies to outsource or relocate some operations overseas may also crimp potential trade gains through services. As a result, larger adjustments will need to come elsewhere.

The bond market will close early on both Wednesday, Nov. 24 and Friday, Nov. 26 and all financial markets will be closed on Thursday, Nov. 25 in observance of the Thanksgiving holiday.

Here's the weekly economic calendar.

MEETING OF NOTE

Sunday, Nov. 21, 6 a.m. EST

U.S. Treasury Secretary John Snow holds a press conference following a Group of 20 meeting in Berlin.

EARNINGS REPORTS

Monday, Nov. 22

Krispy Kreme Doughnut, Toys R Us, and more.

EARNINGS REPORTS

Tuesday, Nov. 23

Analog Devices, Deere & Co., H.J. Heinz, and more.

ICSC-UBS STORE SALES

Tuesday, Nov. 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 Nov. 20. In the week ended Nov. 13, seasonally adjusted sales declined 0.4%, following a large 1.3% jump in the previous period, and a decline of 0.3% in the week ended Oct. 30.

EXISTING HOME SALES

Tuesday, Nov. 22, 10 a.m. EST

October existing home sales probably stayed strong. The consensus estimate among economists surveyed by Action Economics is for existing home sales to come in at an annual pace of 6.71 million, from the September rate of 6.75 million. In August, existing home sales dipped to an annual pace of 6.55 million, from 6.72 million in July.

Existing home sales are on track to break the previous annual sales record of 6.1 million set last year. Mortgage rates staying under 6% are helping to drive sales. As the Federal Reserve keeps raising interest rates, demand will likely start to slow down. However, the housing market is expected to hold up well in 2005.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Nov. 16, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the third fiscal week of November, ending Nov. 20. In the first two weeks ended Nov. 13, sales were up 0.2%. During the full month of October, sales were down 0.6% compared with September.

MORTGAGE APPLICATIONS

Wednesday, Nov. 24, 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. 19. In the week ended Nov. 12, the purchase index slipped to 480.3, from 483 in the prior period, after surging to 496.5 in the week ended Oct. 29. The latest reading of the four-week moving average climbed to 475.2, from 470.5 in the week ended Nov. 12.

The average rate on a conventional 30-year mortgage, according to HSH Associates, moved up to 5.85% in the week ended Nov. 12, from 5.8% during the week of Nov. 5.

The refi index rebounded to 2375.4, after falling to 2148.7 in the week ended Nov. 5 from 2303.9 in the previous week. The gain pushed the refi index four-week moving average to 2265.5, from 2210.4 in the period ended Nov. 5.

DURABLE GOODS ORDERS

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

New orders received by manufacturers of durable goods probably grew 0.5% in October, according to economists queried by Action Economics. In September, orders grew 0.2%, following a 0.5% fall in August, and jumps of 1.9% in July and 1.3% in June.

Once again, volatility in aircraft orders had a sizeable impact on the September results. Nondefense aircraft orders were down 16.3% during the month, following a 46.2% drop in August and a 103.5% leap in July. Strip out the aircraft category, and orders would have been up by 0.8% in September.

There are other signs that durable goods orders should hold up. The Philadelphia Federal Reserve Bank's November factory activity survey showed only a small deceleration in the current pace of new orders and there was a pick up in expectations for new orders over the coming six months. A similar trend was reflected in the recent October Richmond Fed factory activity survey. In addition, the consensus estimate for the Institute for Supply Management's November factory activity index is 56.5%, from 56.8%.

JOBLESS CLAIMS

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

First-time claims for jobless benefits for the week ended Nov. 20 most likely nudged down to 333,000, according economists surveyed by Action Economics. Jobless claims barely budged, as the reading for the week ended Nov. 13 fell to 334,000. In the prior period, initial claims climbed to an upwardly revised 337,000, from 332,000 over the week ended Oct. 30.

The four-week moving average dropped to 338,300, from 337,300 in the period ended Nov. 6. In the week of Nov. 6, continuing jobless claims edged just below 2.8 million.

CONSUMER SENTIMENT INDEX

Wednesday, Nov. 24, 9:45 a.m. EST

The University of Michigan's Survey Research Center will report its final reading of consumer sentiment for November. The consensus among economists surveyed by Action Economics is for a small gain in the index to 96, after the preliminary reading surged to 95.5, from 91.7 in October. In September, the index eased to 94.2, from 95.9 in August, and 96.7 in July. Cheaper oil and gasoline prices, and indications that the labor market is faring well should help keep the final November number at a respectable level.

NEW RESIDENTIAL SALES

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

New single-family homes sales during October were lower but still strong. Economists queried by Action Economics say new home sales should come in at a pace of 1.2 million, following a September rate of 1.21 million, after rising to 1.17 million in August.

There may be some upside risk to the forecast. The November National Association of Homebuilders monthly housing market index remained strong, after a big rebound in the October survey. What's more, the September sales figures may have been affected by weather. If so, then an October bounce is possible.

HELP WANTED ADS

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

The Conference Board releases its October index of help-wanted ads, based on ads culled from major newspapers across the nation. In September, the index slipped to 36, after registering readings of 37 in the prior two months, and 38 in June. The September level was below the year ago reading of 37 and is the first index reading outside of the range between 37 and 40 since May of 2003.

The percentage of markets with a rising want-ad volume retreated to 25%, from 49% in August, and a revised 43% in July. The recent results remain far below the May peak of 75%. Overall help-wanted advertising volume fell in eight of the nine U.S. regions during the three-month period through September.

MEETING OF NOTE

Saturday, Nov. 27, 3 p.m. EST

Federal Reserve Bank of St. Louis President William Poole speaks about financial stability in Prague. By James Mehring


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