Vital Signs for the Week of Sept. 26


The last of the major pre-Katrina and Rita data will be revealed this week. The last bits of information will shed more light on how the economy, especially consumers, were handling higher energy costs prior to the major storms that have hit the Gulf region and the heart of the United States' energy industry.

The August numbers on personal income and spending are expected to show that households cut back on shopping even as income grew at a solid clip. The biggest reason for the expected 0.2% fall in spending rests with slower vehicle sales.

It will be important to see just how much of an effect spending on energy products had on the numbers. July spending on energy goods and services jumped 4.1%. Outlays on energy as a share of after-tax income climbed to 5.6% as of July, after bottoming out at 3.8% in early 1999 and standing at just 4.9% a year ago. The current level is still well below the better than 8% in the early eighties, but the share of income going towards energy is likely to keep rising.

Just how much more of household income goes towards energy depends on Mother Nature and geopolitical issues. Right now, analysts are closely following Hurricane Rita to see how much damage she does to the energy industry infrastructure along the Gulf Coast. In purely economic terms, the most important aspect will be how much refinery capacity is put off-line for a considerable period.

The latest round of consumer confidence data will reveal the psychological impact of recent events. The preliminary report from the University of Michigan showed that gasoline prices and Katrina have had a serious effect.

After a big event such as September 11, consumers bounced back. The key to such a rebound now will be how long gasoline prices stay historically high, how long oil remains well above $60 per barrel, and how long natural gas prices stay in the double digits per BTU, especially with the winter heating season approaching.

In addition, regional manufacturing reports will provide some insight into how factories are weathering the latest events. The August durable goods report will also provide one of the final looks at pre-hurricane demand.

While the storms are unlikely to put the economy flat on its back, the economic impact could be lasting. If energy eats up more of household income, it could slow what has been the country's the biggest source of economic growth: the consumer.

Here's the weekly economic calendar.

MEETING OF NOTE

Monday, Sept. 26, 8:45 a.m. EDT

Brazilian Central Bank Governor Henrique Meirelles addresses the Brazilian-American Chamber of Commerce in Washington, D.C.

9:00 a.m. EDT

Federal Reserve Bank of Chicago President Michael Moskow addresses the National Association for Business Economics' annual meeting in Chicago.

12:30 p.m. EDT

U.S. Treasury Secretary John Snow and Brazilian Finance Minister Antonio Palocci address the Brazilian-American Chamber of Commerce in Washington, D.C.

1:30 p.m. EDT

Federal Reserve Board Chairman Alan Greenspan addresses the American Bankers Association's annual conference via satellite.

8:45 p.m. EDT

Federal Reserve Bank of Kansas City President Thomas Hoenig discusses the U.S. economic outlook at the Oklahoma 2005 Economic Forums in Clinton, Okla.

EARNINGS REPORTS

Jabil Circuit, Walgreen, and more.

EXISTING HOME SALES

Monday, Sept. 26, 10 a.m. EDT

August sales of existing homes, which includes single-family homes and condominiums, most likely slowed a little. The median forecast from economists queried by Action Economics is for an annual rate of 7.11 million in August. The National Association of Realtors reported July sales slowed to an annual rate of 7.16 million, after touching a record rate of 7.35 million in June.

MEETING OF NOTE

Tuesday, Sept. 27, 8 a.m. EDT

White house Council of Economic Advisers Chairman Ben Bernanke speaks about the state of U.S. economy at the National Association for Business Economics' annual conference in Chicago.

12 p.m. EDT

Federal Reserve Bank of San Francisco President Janet Yellen speaks about the U.S. economy before members of the British Parliament at the Conference of U.S. Monetary Policy in London.

2:45 p.m. EDT

Federal Reserve Board Chairman Alan Greenspan addresses the National Association for Business Economics in Chicago.

7 p.m. EDT

Federal Reserve Bank of Chicago President Michael Moskow speaks about the U.S. economy at an Arab-American Business & Professional Association dinner in Chicago.

8:45 p.m. EDT

Federal Reserve Bank of Kansas City President Thomas Hoenig discusses the U.S. economic outlook at the Oklahoma 2005 Economic Forums in Tulsa, Okla.

EARNINGS REPORTS

Tuesday, Sept. 27 EDT

Paychex, and more.

ICSC-UBS STORE SALES

Tuesday, Sept. 27, 7:45 a.m. EDT

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the period ending Sept. 24. During the week ended Sept. 17, sales were down 2.1%, after falling 0.2% in the previous period, and holding steady in the week ended Sept. 3.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Sept. 27, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales through the fourth fiscal week of September, ended Sept. 24. Through the first three weeks of September, ended Sept. 17, sales were up 0.4%. For the entire month of August sales were off 1% compared with the full month of July.

CONSUMER CONFIDENCE INDEX

Tuesday, Sept. 27, 10 a.m. EDT

The Conference Board's September index of consumer confidence probably eased to 95. That's the consensus forecast from Action Economics. In August, the index unexpectedly edged higher, to 105.6. The August present conditions index climbed to 123.6, the highest level since September of 2001. The overall reading for July stood at 103.6, after rising to 106.2 in June.

The August sentiment regarding jobs and business conditions improved slightly. However, the September report is likely to show that consumers are less optimistic with energy prices jumping and Hurricane Katrina. Given the 12.2 point decline in the University of Michigan's first look at September consumer sentiment, there is some downside risk to the consensus forecast.

NEW RESIDENTIAL SALES

Tuesday, Sept. 27, 10 a.m. EDT

New single-family homes sales are expected to have slowed somewhat during August. The consensus among economists queried by Action Economics is for sales to stand at an annual pace of 1.34 million. In July, sales bounced up to an annual pace of 1.41 million, from 1.32 million in June, and 1.3 million in May. The short-term future of the housing market still looks positive. The rate on 30-year fixed-rate mortgages have fallen below 6% once again and the inventory of new homes remains at a svelte 4 months.

At the same time, the rebuilding process in areas hit by Katrina could mean further increases in the prices of homebuilding materials. This could raise new home prices and slow sales.

RICHMOND FED SURVEY

Tuesday, Sept. 27, 10 a.m. EDT

The Richmond Federal Reserve Bank will release the September survey of business conditions in the Richmond Fed district. The region's manufacturers were more optimistic in August, although the effects of higher energy prices and Hurricane Katrina could squelch that improved outlook. The headline shipments index rebounded to 3 in August, after coming in at -3 in both July and June.

The shipments index rose to 8 in August, after sinking to a reading of 2 in July, from 5 in June and 11 in May. The new orders index stood at -1, but that was better than the -3 in July, and -7 in June. The number of employees index showed some improvement in the region's manufacturing job market.

The outlook for the upcoming six months did brighten a little in August. The August reading for shipments rose to 23, from 17 in July. The new orders and backlog orders indexes improved as well.

When it comes to pricing power and input costs, manufacturers said they were able to push up prices a little more than input prices rose. Manufacturers also expressed some optimism about reducing the gap between rising input costs and how much factories could raise the prices of their goods in the coming six months. However, with energy prices spiking in September, respondents could really get squeezed in the short term.

EARNINGS REPORTS

Wednesday, Sept. 28

McCormick & Company, and more.

MORTGAGE APPLICATIONS

Wednesday, Sept. 28, 7 a.m. EDT

The Mortgage Bankers Association releases its numbers on mortgage applications for both home buying and refinancing for the week ending Sept. 23. The purchase index drifted down to 500.3, after rising to 513.4 in the week ended Sept. 9 from 499.1 in the week of Sept. 2. The four-week moving average moved up to 495.9, from 492.9 for the week ended Sept. 9.

The average rate on a conventional 30-year fixed mortgage, according to HSH Associates, bounced back to 5.91% in the week ended Sept. 16, after easing to 5.87% during the week ended Sept. 9.

The MBA's refi index jumped up to 2353.7, from 2198.7 in the period ended Sept. 9. The index stood at 2357.1 during the previous period. The four-week moving average edged down to 2274.3 during the week ended Sept. 16, from 2264.4 in the week ended Sept. 9.

DURABLE GOODS ORDERS

Wednesday, Sept. 28, 8:30 a.m. EDT

Orders for durable goods coming into factories most likely rebounded with a 1% increase during August. That's the median forecast from Action Economics. The drop comes on the heels of a 4.9% plunge in July. New orders rose 1.9% in June and 7.3% in May. The July drop was due to a 20% fall in civilian aircraft orders, as well as a big fall in orders for construction machinery and power transmission equipment.

The August data will help show whether the July fall was merely payback for June and May, or if manufacturers are seeing a potential second-half slowdown driven by energy prices.

Another measure for business spending is durable goods orders excluding defense equipment and aircraft categories. In July, this measure of core nondefense capital goods orders fell 4.1%. In June, core orders jumped 4.9%, after a 0.5% dip in May.

EARNINGS REPORTS

Thursday, Sept. 29

Family Dollar, PepsiCo, and more.

JOBLESS CLAIMS

Thursday, Sept. 29, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended Sept. 24 is forecast to have risen to 450,000 due to Katrina. Jobless claims rose to 432,000 for the week ended Sept. 17, after hitting an upwardly revised 424,000 in the previous period. Displaced workers filing for jobless benefits following Hurricane Katrina account for the spike in claims. Claims surged the most in the Gulf states of Louisiana, Mississippi, Texas, and Alabama.

The four-week moving average jumped to 376,250, from 347,250 for the period ended Sept. 10. Continuing jobless claims for the week ended Sept. 10 moved up to 2.67 million, from 2.58 million in the week ended Sept. 3.

GROSS DOMESTIC PRODUCT

Thursday, Sept. 29, 8:30 a.m. EDT

The final report on economic growth for the second quarter of 2005, measured by real gross domestic product, is expected to show no change in the original topline estimate. That's the consensus among economists queried by Action Economics. The preliminary report showed annualized growth of 3.3%.

First-quarter growth ended up at a decent annualized rate of 3.8%, after a fourth-quarter increase of 3.3%.

HELP WANTED ADS

Thursday, Sept. 29, 10 a.m. EDT

The Conference Board releases its August index of help-wanted ads, based on ads gathered from major newspapers across the nation. The national index nudged up to 39, after rising to 38 in July, from 37 in May. A year ago, the August index was 37.

The percentage of markets with a rising want-ad volume improved to 65%, from an upwardly revised 51% in June, and 41% in May. The upward trend corresponds with other jobs data. The help-wanted advertising rose in five of the nine U.S. regions, an improvement over June when seven of the nine U.S. regions showed a decline in want ads.

PERSONAL INCOME AND CONSUMER SPENDING

Friday, Sept. 30, 8:30 a.m. EDT

Economists polled by Action Economics are forecasting a 0.3% rise in August personal income. Income rose 0.3% in July, after a 0.5% increase during June. Compared with a year ago, income grew 6.3% in July. Personal income is still outpacing overall inflation, providing some breathing room for consumers to keep spending in the face of higher energy costs.

Outlays on goods and services is expected to have slipped 0.2% during August. The expected contraction in spending will likely be concentrated in autos. New light vehicle sales slowed to an annual pace of 16.8 million following a rate of 20.9 million in July.

During both July and June, consumer spending increased 1%, after ticking 0.1% lower in May. The yearly growth rate of consumer spending reached 6.9%, after rising to 6.7% in June, from 5.7% in May.

The personal consumption expenditures (PCE) price indexes are also an important set of data. This series of inflation measures is watched closely by the Federal Reserve. Over the rest of the year, this set of inflation indexes will take on added importance. Analysts will watch to see if higher energy prices begin to creep into other parts of the economy as businesses attempt to pass along the higher expenses.

In July, the PCE index bounced back to an increase of 2.5% compared with the same month a year ago. In June, the index slowed to 2.2%, after easing to 2.5% in May, from 2.9% in April. Excluding food and energy, the core PCE index stood 1.8% above its year ago level. In June, the year ago increase was 1.9%, down slightly from a 2% level in both May and April.

CONSUMER SENTIMENT INDEX

Friday, Sept. 30, 10 a.m. EDT

The University of Michigan's Survey Research Center will report to its final reading of consumer sentiment for September. The median estimate from Action Economics is a reading of 77.5, up a bit from the preliminary September reading of 76.9. The final August reading was 89.1, down from 96.5 in July, and 96 in June.

The decline among the current and future expectations indexes was fairly even. The current conditions index was 97.7 in September, after easing to 108.2 in the final August report. The future expectations index was 63.6 in the initial September survey, down from 76.9 in August.

CHICAGO PURCHASING MANAGERS SURVEY

Friday, Sept. 30, 10 a.m. EDT

The Chicago-area purchasing managers' index of industrial activity in the Midwest probably edged up a little in September. The consensus estimate from Action Economics is for a reading of 51%. The August index tumbled to 49.2%, after surging to 63.5% in July, from 53.6% in June.

The August drop was accompanied by similar declines in the new orders and production indexes. Both the new orders and backlogged orders indexes fell below the 50% threshold, indicating an outright decline in both measures during August. At the same time, more respondents than not said they hired workers in August. By James Mehring


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