Vital Signs for the Week of Jan. 24


By Jim Cooper The highlight of this week's economic data will be the Commerce Dept.'s initial report on fourth-quarter gross domestic product, which is generally expected to show the economy grew at an annual rate of 3.4% last quarter, following the third-quarter advance of 4%. But a lot of attention will be drawn to the report's details, which will show a combination of strong U.S. demand and a pickup in business inventories that will be favorable for continued healthy economic growth in early 2005.

Once again, as in the third quarter, consumers led the way last quarter. Real consumer outlays, which are adjusted for inflation, appear to have grown at an annual rate of more than 4%, following the third quarter's 5.1% advance. This week's report on consumer confidence in January will provide a key reading on how consumers view their prospects in the new year. Confidence jumped sharply in December, and if the January reading only holds onto its December gain, that will be a positive sign.

SYMBIOTIC RELATIONSHIP. Business demand for capital equipment also helped fuel last quarter's economic growth. Equipment outlays appear to have posted another double-digit growth rate, after surging to 17.5% in the third quarter. This week's data on durable-goods orders in December will offer some guidance on business spending and confidence in early 2005 as well. In particular, the trend in capital-goods orders, excluding the jumpiness in aircraft orders, is an important measure of business confidence, because they represent hard financial commitments to future demand. Through November, that order trend has been strongly upward.

This is the stage of the business cycle when consumer and business spending develop a symbiotic relationship that make a recovery self-sustaining: Businesses begin to expand and add to their payrolls, which generates incomes for additional consumer spending, further fueling expansion.

But at the same time, business costs begin to pick up. That's why the markets also will be keenly interested in the Labor Dept.'s fourth-quarter employment cost index, a measure of what businesses shell out for wages, salaries, and benefits. Those trends will have important implications for inflation and profits this year.

Here's the full economic calendar for the coming week:

EARNINGS REPORTS

Monday, Jan. 24

American Express (AXP), Eaton (ETN), Kimberly-Clark (KMB), Occidental Petroleum (OXY), Union Pacific (UNP), and more

MEETING OF NOTE

Monday, Jan. 24, 12:40 p.m. EST

Federal Reserve Bank of Atlanta President Jack Guynn speaks on the economic outlook before the Atlanta Rotary Club in Atlanta.

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EARNINGS REPORTS

Tuesday, Jan. 25

BellSouth (BLS), CSX (CSX), Computer Associates (CA), DuPont (DD), Johnson & Johnson (JNJ), Kraft Foods (KFT), Merck & Co. (MRK), Sara Lee (SLE), Schering-Plough (SGP), Schlumberger (SLB), Texas Instruments (TXN), Xerox (XRX), and more

MEETING OF NOTE

Tuesday, Jan. 25 ,12:30 p.m. EST

Kansas City Federal Reserve Bank President Thomas Hoenig discusses economic and monetary policy developments in Oklahoma City, Okla. Hoenig is a voting member of the Fed's policymaking Federal Open Market Committee.

ICSC-UBS STORE SALES

Tuesday, Jan. 25, 7:45 a.m. EST

This weekly tracking of retail sales, assembled by the International Council of Shopping Centers and Swiss bank UBS, will update buying activity for the week ending Jan. 22. In the week ended Jan. 15, seasonally adjusted sales fell by 0.9%, after a 0.6% decline in the week ended Jan. 8, and a 0.2% gain in the prior week.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Jan. 25, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the third fiscal week of January, ending Jan. 22. During the first two weeks, ended Jan. 15, sales were up 1.2% compared to sales for all of December. For the month of December, sales were up 0.2% from November.

CONSUMER CONFIDENCE INDEX

Tuesday, Jan. 25, 10 a.m. EST

The Conference Board's January index of consumer confidence is expected to decline to 101.5, based on a survey of economic projections taken by Action Economics. The December index jumped to 102.3, the highest reading since July, from 92.6 in November.

EXISTING HOME SALES

Tuesday, Jan. 25, 10 a.m. EST

December resales of existing homes are expected to drop to an annual rate of 6.81 million, according to Action Economics' survey of forecasts. November sales rose 2.7% from October, to an annual rate of 6.94 million, the highest on record.

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EARNINGS REPORTS

Wednesday, Jan. 26

Applied Micro Devices (AMCC), Black & Decker (BDK), Eastman Kodak (EK), Eli Lilly (LLY), RealNetworks (RNWK), SBC Communications (SBC), VeriSign (VRSN), and more

MORTGAGE APPLICATIONS

Wednesday, Jan. 26, 7 a.m. EST

The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Jan. 21. In the week ended Jan. 14, the purchase index rose to 448.1, from 393.1 in the previous week, which was down from 417.3 in the period ended Dec. 31. The latest reading of the four-week moving average fell to 435.6, from 441.3 in the week ended Jan. 7.

The average rate on a conventional 30-year mortgage, according to HSH Associates, dipped to 5.82%, from 5.86% in the period ended Jan. 7.

The MBA's refi index moved up again, to 2048.6, from 1720.5 in the week ended Jan. 7, and 1701.3 in the prior week. As a result, the four-week moving average rose to 1818.6. In the week ended Jan. 7, the moving average was 1796.

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EARNINGS REPORTS

Thursday, Jan. 27

7-Eleven (SE), Amgen (AMGN), Bausch & Lomb (BOL), Bristol-Myers Squibb (BMY), Caterpillar (CAT), Colgate-Palmolive (CL), Dow Jones (DJ), Gateway (GTW), Guidant (GDT), JetBlue Airways (JBLU), Lockheed Martin (LMT), Microsoft (MSFT), Nokia (NOK), Overstock.com (OSTK), Stanley Works (SWK), Verizon Communications (VZ), Yellow Roadway (YELL), and more.

JOBLESS CLAIMS

Thursday, Jan. 27, 8:30 a.m. EST

First-time claims for jobless benefits in the week ended Jan. 22 probably rose to 330,000. Jobless claims dropped to 319,000 in the week ended Jan. 15, after rising to 367,000 in the prior week, from 357,000 in the wqeek ended Jan. 1.

The four-week moving average dipped to 341,000, down from 344,000 in the week ended Jan. 8. During the week of Jan. 8, continuing jobless claims fell to 2.74 million, from 2.75 million in the week ended Jan. 1.

DURABLE GOODS

Thursday, Jan. 27, 8:30 a.m. EST

Orders coming into factories for durable goods are expected to have increased by 0.5% in December, based on a survey of forecasts by Action Economics. November orders climbed 1.4%, after falling 1% in October.

The markets will be especially interested in the performance of core nondefense capital goods orders, which exclude the large ups and downs in aircraft bookings. Such orders rose 0.8% in November and have risen in five of the past six months. Economists will be watching closely to discern if the expiration of special depreciation allowances at yearend, which could have boosted yearend ordering, will have any impact on orders or shipments at the beginning of 2005.

HELP WANTED INDEX

Thursday, Jan. 27, 10 a.m. EST

The Conference Board will release its December index of help-wanted advertising, based on a nationwide survey of classified ads. The November reading stood at 36, and the index has been about flat for more than a year.

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EARNINGS REPORTS

Friday, Jan. 28

ChevronTexaco (CVX), Halliburton (HAL), Honeywell (HON), McDonald's (MCD), Proctor & Gamble (PG), T. Rowe Price (TROW), and more

GROSS DOMESTIC PRODUCT

Friday, Jan. 28, 8:30 a.m. EST

Fourth-quarter real gross domestic product, the broadest measure of the economy's performance, is expected to have climbed 3.4%, according to economists surveyed by Action Economics. Domestic demand, or spending by all U.S. purchasers on goods and services produced at home or abroad, is anticipated to rise strongly, led by consumer and business spending.

Inventory growth is expected to be faster than it was in the third quarter, which will also contribute positively to GDP. The biggest drag on GDP growth last quarter was a sharp widening in the trade deficit. On balance, the composition of the report will most likely be interpreted in the markets as a plus for future growth.

EMPLOYMENT COST INDEX

Friday, Jan. 28, 8:30 a.m. EST

The Labor Dept.'s fourth-quarter employment cost index, a measure of wages, salaries, and benefits paid by businesses, is expected post an increase of 0.8% from the third quarter, implying a 3.8% gain for the full year. That's the expectation of forecasters surveyed by Action Economics.

The breakdown between wage and benefits will be important, because wages appear to be growing faster, while health care costs have tempered, allowing the overall growth of benefits to slow. How these patterns develop will influence the trends in consumer spending and corporate profits in coming quarters. Cooper is BusinessWeek's Business Outlook editor


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