By James Mehring Following its Mar. 22 monetary policy meeting, the Federal Reserve once again said that the upside and the downside risks to both sustainable growth and price stability in the coming months should stay roughly equal. However, many economists are starting to see a significantly higher upside risk to inflation.
That means any new economic data that shed light on the outlook for growth and inflation are likely to have increased influence on the financial markets. And this week's batch of data offers several key reports.
SENSITIVE MARKETS. The Fed stuck to its methodical pace of tightening at last week's meeting, raising the fed funds rate by a quarter-point, to 2.75%. But the central bank's press release is what grabbed Wall Street's attention. While saying risks remained balanced, the Fed also said price pressures and pricing power are emerging. The result was a sharp upturn in bond yields.
The financial markets may become even more sensitive to hints of inflation and signs of strong economic growth that can add more fuel to price pressures. The personal-income and outlays report may be particularly interesting. Economists expect it to show consumers are still spending at a solid clip, as income gains outpace inflation. The February data may also provide an early glimpse as to whether high gasoline prices are altering consumer spending. Also, two March consumer-confidence reports will show the impact of energy prices on household sentiment.
The government's personal-income report will also include the February price index for personal consumption expenditures. These price indexes are the preferred measures of inflation by Fed officials, especially the core index which strips out food and energy. Another gauge of pricing pressures will come out in the Institute for Supply Management's factory-activity report. The prices-paid index tracks the direction of prices paid by manufacturers for materials and supplies. Recently, the index has been showing a slowdown in price increases faced by respondents.
WIDELY ANTICIPATED. When it comes to gauging the health of the economy, everyone will be waiting for the March jobs report. Another round of solid job growth is expected. Economists surveyed by Action Economics say payrolls grew by 225,000 in March. But economy watchers will also be interested in seeing if people are working more hours, and if weekly pay increases. Should both occur, it would be further evidence that the job market is heating up, and demand for additional workers in the coming months may be building.
The Fed will also be closely watching. It knows some in the financial markets already think it's not moving fast enough to stay ahead of inflation. And while it wants long-term interest rates to rise, a sharp and volatile run-up is not desirable. Additional signs of strong growth and faster inflation could cause the bond market to ratchet up long-term rates faster than the Fed would like, prompting the central bank to pick up its own pace.
Here's the weekly economic calendar.
Monday, Mar. 28
Walgreen (WAG), and more.
Tuesday, Mar. 29
Apollo Group (APOL), and more.
ICSC-UBS STORE SALES
Tuesday, Mar. 29, 7:45 a.m. EST
This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ending Mar. 26. In the week ended Mar. 19, sales rose 0.2%, after a 0.6% gain in the prior week, which followed a 0.4% dip during the week ended Mar. 5.
INSTINET REDBOOK RESEARCH STORE SALES
Tuesday, Mar. 29, 8:55 a.m. EST
This weekly measure of retail activity will report on sales for the fourth fiscal week of March, ending Mar. 26. Over the first three weeks of March, ended Mar. 19, sales were down 0.7% compared to the same period in February. For the entire month of February, retailers reported a 2% increase in sales compared to January.
CONSUMER CONFIDENCE INDEX
Tuesday, Mar. 29, 10 a.m. EST
The Conference Board's March index of consumer confidence probably edged down to a reading of 103.5, say economists surveyed by Action Economics. In February, the index fell to 104, from 105.1 in January.
Consumers are feeling increasingly confident about current conditions, as the labor market improves, and the economic growth remains strong. At the same time, respondents are less certain about the coming six months. Rising oil and gasoline prices could have some impact on consumers' outlook for the economy in the March results.
Wednesday, Mar. 30
Best Buy (BBY), Circuit City Group (CC), and more.
Wednesday, Mar. 30, 7 a.m. EST
The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Mar. 25. In the week ended Mar. 18, the purchase index retreated to 446.4, from 462.8 over the week of Mar. 11, and 451.7 in the prior period. The four-week moving average kept rising. For the week ended Mar. 18, the average was 450.2, after it climbed to 443.1 in the week ended Mar. 11.
The average rate on a conventional 30-year mortgage, according to HSH Associates, hit 6.05% in the week ended Mar. 18, from 5.94%.
The MBA's refi index also posted a gain. During the week of Mar. 18, the index fell to 1894.4, from 2267.5 in the prior period, and 2176.8 over the week ended Mar. 4. The four-week moving average declined to 2155, from 2314.4 in the week ended Mar. 11.
GROSS DOMESTIC PRODUCT
Wednesday, Mar. 30, 8:30 a.m. EST
The final look at fourth-quarter gross domestic product should show another upward tweak to economic growth. Fourth-quarter real GDP, the broadest measure of the economy's performance, probably expanded at an annualized rate of 4%, according to a survey by Action Economics. In the preliminary report released February, growth in the final quarter was revised up to 3.8%, from 3.1%. In the third quarter, GDP growth was an annualized 4%, after a 3.3% increase in the second quarter, and a 4.5% jump in the first period of 2004.
MEETING OF NOTE
Thursday, Mar. 31
International Monetary Fund Managing Director Rodrigo Rato and European Central Bank member Jaime Caruana speak at a conference in Madrid.
Thursday, Mar. 31, 8:30 a.m. EST
First-time claims for jobless benefits for the week ended Mar. 26 most likely eased back to 319,000. Jobless claims nudged up to 324,000 in the week ended Mar. 19, after cooling down to 321,000 the previous week from 332,000 in the week ended Mar. 5.
The four-week moving average increased to 321,800 for the week ended Mar. 19, from 318,300 during the period ended Mar. 12. During the week of Mar. 12, continuing jobless claims rose to 2.67 million from 2.64 million in the prior period.
PERSONAL INCOME AND CONSUMER SPENDING
Thursday, Mar. 31, 8:30 a.m. EST
Personal income most likely continued to grow at a hale and hearty clip during February. Economists queried by Action Economics say personal income probably improved by 0.4%. In January, income plunged 2.3%, following a 3.7% surge in December as a result of the huge Microsoft (MSFT) dividend payout during that month. Strip out the dividend payment, and personal income posted gains of 0.6% and 0.5%, respectively, in December and January.
Compared to a year ago, income was up 6% in January and would stand a tick lower at 5.9% in February if the median estimate proves correct.
Outlays on goods and services probably moved up by 0.5% as well, after remaining unchanged in January and jumping by 0.8% in December. The yearly growth rate of consumer spending stood at 5.7% in January, from 6.4% in December. Using the forecasted increase for February, spending would be about 5.6% better than last February.
Given the recent commotion over building inflationary pressures, economy watchers will also be paying close attention to the February price index for personal consumption expenditures (PCE). In January, the index stood 2.2% above the year-ago level, down from 2.4% in December. Since August, the price index tracking durable goods has been showing a steady slowdown in falling prices. Compared to the same period a year ago, durable-goods prices were off by 0.3% in January, compared to 2.2% in August. The Fed's preferred PCE price index excludes food and energy. In January that measure stood just 1.6% above the year-earlier level. However, the monthly increase in the first month of 2005 was 0.3%.
MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS
Thursday, Mar. 31, 10 a.m. EST
Factory orders are forecast to have expanded a little more in February. Economists surveyed by Action Economics expect new orders to rise 0.5% in February. Orders increased 0.2% in January, after a 0.5% gain in December, and a 1.4% leap in November.
The recently published data on new orders for durable goods showed a 0.3% gain in February. However, the underlying numbers weren't as rosy. It appears that businesses may have taken a breather in February. Recent data had been weighed down by the transportation sector. Core durable goods orders which strip out defense spending and aircraft orders showed a hefty 4.4% gain in January and a 3.4% jump in December. In February, core durable goods orders were down 2.1%, while transportation-related orders rose 1.6%.
CHICAGO PURCHASING MANAGERS SURVEY
Thursday, Mar. 31, 10 a.m. EST
The Chicago-area purchasing managers' index of industrial activity in the Midwest probably cooled off a little in March. The consensus forecast of economists queried by Action Economics is for a reading of 60.5. In February, the index remained unexpectedly firm, rising to 62.7, from 62.4 in January, and 61.9 in December.
The February data pointed to a strong start to the year. The production index edged up to 68.5, from 68.3 in January. New orders also accelerated over the period, which likely contributed to a jump in the backlogged-orders index. The stronger demand may have prevented companies from ratcheting up their inventories. The inventories index held steady with a second straight monthly reading of 53.2.
Thursday, Mar. 31, 10 a.m. EST
The Conference Board releases its February index of help-wanted ads, based on ads culled from major newspapers across the nation. In January, the index jumped to 41, after climbing to 38 in December, from 36 in November. The latest figure was the best since February, 2003. In February, 2004, the index stood at 38.
The percentage of markets with a rising want-ad volume held at 71%. In November, the level was 31%. Overall help-wanted advertising volume grew in eight of the nine U.S. regions during the three-month period through January.
MEETING OF NOTE
Friday, Apr. 1, 7:30 p.m. EST
Federal Reserve Bank of New York President Timothy Geithner gives a speech at the spring symposium of Princeton University's Center for Economic Policy Studies on "The Future of the Federal Reserve" in Princeton, N.J.
Friday, Apr. 1
Sales of domestic and imported cars and light trucks over the course of March are expected to have improved slightly to an annual pace of 16.5 million vehicles, according to WardsAuto.com. In February, sales were practically unchanged at an annual rate of 16.3 million, after slumping to 16.2 million in January. February consumer- and producer-price data from the government showed a decline in auto prices, an indication of greater discounting in February. Sales in March will hinge on how much additional price cutting auto manufacturers do over the course of the month.
Friday, Apr. 1, 8:30 a.m. EST
After a surprising February, economists believe job growth held up in March. The median forecast of those surveyed by Action Economics calls for an increase of 225,000 jobs in March. In February, payrolls expanded by 262,000, after a January increase of 132,000, and a gain of 155,000 in December. The expected job gains during March are expected to push the unemployment rate down to 5.3%, from 5.4% in February.
According to Action Economics, factories probably added 5,000 more workers after a gain of 20,000 in February. The February gain was the first since August.
The average workweek probably held steady at 33.7 hours for a fifth straight month. Meanwhile, gains in average hourly earnings are forecast to grow by 0.2% after holding steady in February.
CONSUMER SENTIMENT INDEX
Friday, Mar. 4, 9:45 a.m. EST
The University of Michigan's Survey Research Center will report to its clients its final reading of consumer sentiment for March. News services will then report the index. The median estimate from Action Economics is a reading of 92.9, unchanged from the preliminary result. The initial March reading was down from the 94.1 registered in February, and 95.5 in January.
In the early look at consumer sentiment for March, both the current conditions and future expectations components declined. According to the University of Michigan, consumers are still a little nervous about the resilience of the labor market. The February survey showed that financial conditions have definitely improved among the respondents, but they are skeptical about additional progress in the coming months.
Friday, Apr. 1, 10 a.m. EST
The Institute for Supply Management's March index of industrial activity is expected to show that factories remain quite busy. The median forecast from Action Economics is for a March reading of 55%. In February, the index declined to 55.3% from 56.4% in January and 57.3% in December. Despite the easing in the past few months, the surveys continue to show that demand is rising.
The new-orders index stood at 55.8% in February, off slightly from the 56.6% in January. A reading above 50% means that new orders are increasing. Production also rose, albeit at a slower pace than January. The February index tracking production stood at 56.7 from 57.8 in January. New orders and employment also improved at a slightly slower clip, and the level of unfilled orders was unchanged at 50.5%.
Friday, Apr. 1, 10 a.m. EST
Construction outlays probably continued to grow at a robust clip. The consensus estimate from Action Economics is for a February increase in monthly construction outlays of 0.6%. During January, spending rose by 0.7%, following jumps of 1.2% in December and 1% in November. Compared to the same period a year ago, construction outlays were up 10.6%. That's the biggest yearly increase since the middle of 2000. New single-family homes are the biggest driver for the industry. In January, construction outlays of such homes grew by 0.9%. Recent home sales figures point to continued strength in this segment of the construction sector.
MEETINGS OF NOTE
Saturday, Apr. 2, 9 a.m. EST
Federal Reserve Board Governor Donald Kohn and Federal Reserve Bank of Philadelphia President Anthony Santomero will take part in a panel discussion on whether the Fed should adopt inflation targeting. The discussion is part of the Princeton University Center for Economic Policy Studies' spring symposium on "The Future of the Federal Reserve" in Princeton, N.J.
10:45 a.m. EST
Federal Reserve Bank of St. Louis President William Poole and former Federal Reserve Bank of Richmond President Alfred Broaddus discuss how the Fed should communicate. The panel discussion is part of the Princeton University Center for Economic Policy Studies' spring symposium on "The Future of the Federal Reserve" in Princeton, N.J.
1:45 p.m. EST
Federal Reserve Board Governor Edward Gramlich takes part in a panel group discussing how the Fed should handle asset-market bubbles at the Princeton University Center for Economic Policy Studies' spring symposium on "The Future of the Federal Reserve" in Princeton, N.J. Mehring is an economics editor for BusinessWeek in New York