Vital Signs for the Week of Oct. 3


On Sept. 29, the Congressional Budget Office offered its best estimates on the economic impact from Hurricanes Katrina and Rita. The nonpartisan CBO projected the hurricanes will reduce economic growth in the third quarter by between 1 and 1.5 percentage points (at an annual rate), but government spending on cleanup and repair will offset all of the negative effects on fourth-quarter growth. Those estimates imply that the annual growth rate in the second half will be about 0.5 percentage points lower than it would have been otherwise.

Unfortunately, assessing the state of the economy and the accuracy of such a forecast will be very difficult over the next couple of weeks. The next round of economic data will be exaggerated by the sharp disruptions from the hurricanes. As a result, the markets will likely place a little more weight on weekly indicators. In addition, economists will attempt to parse out effects on data from the hurricanes, higher energy prices, and the health of the economy in general.

The market will discount to some extent the September labor report figures. The consensus among economists for non-farm payrolls is for a drop of 143,000 workers and an unemployment rate that rises to 5.1%. Unless the results surprise greatly to either the upside or the downside, there will likely be little reaction to Friday's report.

In the last few weeks, the markets have more closely watched the weekly jobless claims reports. Excluding direct Katrina effects, claims numbers suggest continued strength in the job markets. New claims are expected to come in at 375,000 for the week ended Oct. 1, after better-than-expected results in the latest report.

The weekly energy figures from the Energy Information Administration and the American Petroleum Institute will also be closely monitored. Despite the infrastructure damage in the Gulf State region, the EIA said on Sept. 28 that inventories of crude oil and distillate fuel remain above average for this time of the year. A large stream of imported gasoline kept stockpiles at average levels. The EIA also reported that seven refineries shut down by Rita should be operating again within ten days.

If energy supplies hold up, that would be good news for economic growth and inflation. This week's ISM business activity reports for September will show just how much energy is already affecting businesses. In August, there was a big spike in the number of manufacturers reporting higher materials prices, while the services sector, which dominates the non-manufacturing survey, showed some easing in prices paid.

Here's the weekly economic calendar.

VEHICLE SALES

Monday, Oct. 3

September auto sales are expected to cool down some more despite the continuation of employee pricing schemes by some U.S. auto makers. According to WardsAuto.com, sales are expected to come in at an annual rate of 15.9 million units, the slowest monthly rate since June of 2004. A small part of the slowdown will be the result of Hurricane Katrina.

In August, sales of domestic and imported cars and light trucks slowed to an annualized rate of 16.8 million. July sales stood at a pace of 20.9 million. The risk from such deep discounting by the American producers is that sales for the rest of the year will flag because incentives simply brought forward buying decisions.

ISM SURVEY

Monday, Oct. 3, 10 a.m. EDT

The Institute for Supply Management's September index of industrial activity probably retreated. The consensus estimate from Action Economics is for a reading of 52%. The August ISM index eased to 53.6%, after rising to 56.6% in July from 53.8% in June.

The production and new orders indexes also fell in August, reinforcing the overall view that activity slowed. The unfilled orders index edged up to 50.5%, indicating a very slim majority of respondents saw their backlog of orders increase in August.

At the same time, the prices paid index shot up to 62.5%, from 48.5% in July. The percentage of respondents saying that prices for materials and supplies was 36%, the biggest share since April. With hurricanes in September pushing up oil and gasoline prices, this index may rise further.

The figures continue to indicate that manufacturers continue to get pinched by higher input costs and a limited ability to pass along those costs to customers.

CONSTRUCTION SPENDING

Monday, Oct. 3, 10 a.m. EDT

Construction outlays are expected to have picked up in August. The consensus estimate from Action Economics is for a 0.4% increase. In July, sales held steady after falling 0.6% in June. Compared with the same period a year ago, July construction outlays were up 6%.

A 0.8% drop in government construction outlays was mostly offset by a 0.2% rise in private residential construction. Nonresidential construction also rebounded in July, after declining in June and May. Lodging and commercial construction were among the strongest July performers within the nonresidential sector.

The rebuilding efforts following Hurricanes Katrina and Rita will likely have a small effect on the national residential construction figures. The total Gulf Coast Metro Area, which includes the areas hardest hit by Katrina, only make up about 1.1% of the U.S. housing units, according to the Census Dept.

MEETINGS OF NOTE

Tuesday, Oct. 4, 3 p.m. EDT

Federal Reserve Bank of St. Louis President William Poole gives a speech entitled "How Predictable is Fed Policy?" at the University of Washington in Seattle.

7 p.m. EDT

Federal Reserve Bank of Philadelphia President Anthony Santomero speaks about the economy at Lycoming College in Williamsport, Pa.

ICSC-UBS STORE SALES

Tuesday, Oct. 4, 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 Oct. 1. During the week ended Sept. 24, sales were up 0.1%, the first weekly gain since the end of July. During the week ended Sept. 17, sales tumbled 2.1%, and slipped 0.2% in the previous period.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Oct. 4, 8:55 a.m. EDT

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

MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS

Tuesday, Oct. 4, 10 a.m. EDT

Factory orders most likely showed a renewed bout of demand. The consensus is for a 2% increase for August, after 1.9% drop in July. In June, orders rose 0.9%, after a 4.2% leap in May.

The recently published data on durable goods orders were much stronger than expected, with an August increase of 3.3%. Durable goods orders in July fell 5.3%. The latest figures seem to indicate that the July results were just payback for the solid gains posted during the prior two months.

A good sign from the durable goods report was the 3.6% jump in orders for core capital goods. This measure looks at capital goods orders less aircraft. It's a good way to keep tabs on business investment. In July, core capital goods orders fell 3.3%.

MEETING OF NOTE

Wednesday, Oct. 5, 12:30 p.m. EDT

Federal Reserve Bank of Kansas City President Thomas Hoenig discusses the economic outlook at a business leaders' luncheon in Casper, Wyo.

EARNINGS REPORTS

Wednesday, Oct. 5

Solectron, Yum! Brands, and more.

MORTGAGE APPLICATIONS

Wednesday, Oct. 5, 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. 30. The purchase index retreated to 483.1, from 500.3 in the week ended Sept. 23, and 513.4 in the week ended Sept. 9. The four-week moving average, however, moved up to 499, from 495.9 for the week ended Sept. 16.

The average rate on a conventional 30-year fixed mortgage, according to HSH Associates, climbed to 5.97% in the week ended Sept. 23, after rising to 5.91% during the week ended Sept. 16.

The MBA's refi index fell back to 2106.6 during the week of Sept. 23, after jumping to 2353.7 in the prior period, from 2198.7 in the period ended Sept. 9. The four-week moving average edged down to 2254.0, from 2274.3 during the week ended Sept. 16.

ISM NON-MANUFACTURING SURVEY

Wednesday, Oct. 5, 10 a.m. EDT

The Institute for Supply Management releases its September index of business activity in the mostly services, non-manufacturing sector. The consensus among economists surveyed by Action Economics is that the September reading will fall to 60%. In August, the index unexpectedly bounced up to 65%, after slipping to 60.5% in July, from 62.2% in June.

The rest of the report painted a pretty nice picture for nonmanufacturers. The new orders, new export orders, and employment indexes improved in August.

The prices paid index eased to 67.1%, from 70.3% in July. However, the August reading was still comparatively high.

MEETINGS OF NOTE

Thursday, Oct. 6, 9:30 a.m.

Federal Reserve Bank of Chicago President Michael Moskow gives the opening remarks at the Chicago Federal Reserve Bank's cross-border banking conference in Chicago.

10:30 a.m. EDT

The Federal Reserve Board holds an opening meeting on Basel I risk capital standards in Washington, D.C.

10:30 a.m. EDT

Bank of Mexico Governor Guillermo Ortiz gives a keynote address at the Chicago Federal Reserve Bank's cross-border banking conference focusing on regulatory challenges.

6:15 p.m. EDT

Canada's Prime Minister Paul Martin speaks at the Economic Club of New York in New York City.

EARNINGS REPORTS

Thursday, Oct. 6

Constellation Brands, Costco Wholesale, Marriott International, and more.

CHAIN STORE SALES

Thursday, Oct. 6

The International Council of Shopping Centers will release its September same-store sales figures for major U.S. chain retailers. According to the ICSC, September sales most likely grew near 3% from the same period a year ago.

In August, sales were up 3.6% despite an easy year ago comparison. Retailers reported spotty back-to-school sales. September sales are likely to have some downside risks given the hurricanes and an upswing in gasoline prices.

JOBLESS CLAIMS

Thursday, Oct. 6, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended Oct. 1 is forecast to have bounced up to 375,000. Jobless claims retreated back to 356,000 for the week ended Sept. 24, after an upwardly revised 435,000 for the week ended Sept. 17, and 424,000 in the previous period. The number of jobless claims resulting from Hurricane Katrina appears to have fallen off more quickly than expected. At the same time, however, the latest numbers were probably depressed by Hurricane Rita. Therefore, claims could pop higher again next week.

The four-week moving average climbed to 385,500, from 377,000 for the period ended Sept. 17. Continuing jobless claims for the week ended Sept. 17 moved up to 2.8 million, from 2.67 million in the week ended Sept. 10.

EMPLOYMENT REPORT

Friday, Oct. 7, 8:30 a.m. EDT

The September employment report is expected to reflect disruptions from Hurricane Katrina. The consensus estimate from Action Economics is for a drop in September payrolls of 143,000. In August, 169,000 jobs were added, after an upwardly revised July gain of 242,000 workers.

The jobless rate is expected to move back to 5.1%, after slipping to 4.9% in August, from 5.0% in both June and July. At the same time, the average work week will likely hold at 33.7 hours. This may be affected by the hurricane as well.Average hourly pay probably increased 0.2%, after a rising by 0.1% in August, and a surprising 0.4% in July.

WHOLESALE SALES AND INVENTORIES

Friday, Oct. 7, 10 a.m. EDT

Wholesale sales probably jumped in August. The median forecast of economists queried by Action Economics is for a monthly gain of 0.5%. In July, wholesale sales also climbed 0.5% for a second straight month, after rising 0.1% in May. The July rise was driven by a 1.9% increase in auto sales and a 7.6% surge in sales of petroleum.

Wholesale sales are measured in dollars and not by volume. The rising prices for petroleum products will push up sales figures for energy goods.

Wholesale inventories eased 0.1% in July, after 0.4% gain in June, and 0.3% in May. Drops in inventories of computer equipment, drugs, and metals pulled the overall number lower. Petroleum inventories rose 5.6% in July. The small July decline left the inventory to sales ratio down to 1.18, from 1.19 in June.

CONSUMER INSTALLMENT CREDIT

Friday, Oct. 7, 3 p.m. EDT

Consumer credit probably grew $4.8 billion in August. That's the consensus estimate from Action Economics. In July, households added $4.4 billion in new debt, after a $14.5 billion surge during June.

Consumers continued to be generally cautious about piling up credit card debt. After a June jump of $7.2 billion in revolving credit, made up primarily of credit card debt, the July balance fell by $1 billion. In the past six months, revolving credit has grown by $7 billion, vs. $31.1 billion for non-revolving credit, which consists largely of auto loans. By James Mehring


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