Vital Signs for the Week of Oct. 31


It's unclear just how much slack is left in the U.S. economy. In the third quarter, real gross domestic product grew by a faster-than-expected 3.8% annualized rate. A rate of growth that strong would imply that the economy is still growing fast enough to absorb unused labor, idle factory equipment, and empty office space. As the economy gets closer to operating at full tilt, inflation could pick up beyond the energy sector.

The Federal Reserve is keeping close watch on how much capacity is left in terms of the labor market and equipment. It's also keeping an eye on whether or not pricier oil is acting as a lubricant enabling businesses to pass along not only higher energy costs but also other operating and input expenses as well. The concern that higher energy and commodity costs could lead to price increases for a wider range of goods and services, including wages, is why economists are unanimous in their forecast that the Fed will raise interest rates again on Nov. 1.

A few days after the Fed meets, the Labor Dept. will release some key data that will bear on the inflation outlook. The third-quarter labor productivity figures come out on Nov. 3. The GDP numbers and softer jobs figures for the period point to a strong result. Higher productivity allows the economy to run at a faster pace without using extra resources, which helps limit inflationary pressures. If productivity can hold up at a solid pace of around 2.5% a year, then economic growth of 3.5% per year will about match the pace of the economy's available labor and capital resources. The slower the pace of productivity, the more labor and equipment are needed to meet demand.

Then on Nov. 4 comes the week's spotlight report, the October labor market data. The jobs data are expected to show a bounce back from the hurricane-tainted figures of September. Economists expect a gain of 110,000 jobs, after a fall of 35,000 in September.

Of course, demand is the other vital component of economic growth and inflation. The September data on personal income and spending will show how consumers acted in the face of high gasoline prices and much fewer tantalizing incentive programs from the big American auto makers. The third-quarter GDP data shows consumers remain the linchpin of strong economic growth.

The Institute for Supply Management's October business activity indexes will reveal if manufacturers are still feeling confident despite some easing in new orders. The data on September construction spending will also shed some light on how well housing is holding up in the face of rising mortgage rates.

This week's figures will help economists assess just how fast untapped capacity is getting used up, and whether inflation pressures will keep building as we enter the fourth quarter.

Here's the weekly economic calendar.

MEETINGS OF NOTE

Monday, Oct. 31

U.S. President George W. Bush meets with Italy's Prime Minister Silvio Berlusconi at the White House in Washington, D.C.

12 p.m. EST

U.S. Treasury Secretary John Snow gives a speech entitled "Fiscal Policy and the World's Most Resilient Economy" before the Detroit Economic Club in Detroit, Mich.

EARNINGS REPORTS

Monday, Oct. 31

Humana, Kellogg, Occidental Petroleum, SYSCO, Principal Financial Group, Valero Energy, XL Capital, and more.

PERSONAL INCOME AND CONSUMER SPENDING

Monday, Oct. 31, 8:30 a.m. EST

September personal income probably bounced back. The consensus estimate from Action Economics is for a 0.3% increase. In August, income slipped 0.1%, after a 0.3% increase during July. Compared with a year ago, income slowed to a pace of 5.6% in August, from 6.2% in July.

Personal income is still outpacing inflation but the pace has slowed recently. Inflation-adjusted income was up 2.6% from a year ago in August, from 3.6% in July, and 4.1% in June.

Outlays on goods and services probably rebounded, with a 0.5% rise in September. Consumer spending in July fell 0.5%, following gains of 1.2% in July and 1% in June. The yearly growth rate of consumer spending was 6.6% during August, from 7.3% in July.

The personal consumption expenditures (PCE) price indexes are also important. This series of inflation measures is watched by the Federal Reserve. In August, the PCE jumped to 3%, vs. the same month a year ago, from 2.6% in July, and 2.2% in June. Stripping out food and energy, the core PCE index was up 2% from a year ago. In both July and June, the yearly rise was 1.9%. Energy prices are pushing the headline index higher, but there remain few signs that it's pumping up the core price index yet.

CHICAGO PURCHASING MANAGERS SURVEY

Monday, Oct. 31, 10 a.m. EST

The Chicago-area purchasing managers' index of industrial activity in the Midwest most likely eased in October. The consensus estimate among economists queried by Action Economics is for a reading of 58%. The September index rebounded to 60.5%, from 49.2% in August. The July level was 63.5%.

The new orders, production, and order backlogs indexes also posted positive results in September. The new orders index rose to 62.4%, from 56.2% in August. The backlogged orders level was 54.3% in September, while the production index was 63.4%.

Even though factory activity increased in the region, businesses are facing greater price pressures. The prices paid index shot up to 76.3%, the highest level since January. A total of 52% of respondents said prices paid for input costs increased during the period while just 5% said costs had declined. The sharp increase is due in large part to higher energy and commodities prices.

MEETING OF NOTE

Tuesday, Nov. 1

The Federal Reserve's Federal Open Market Committee meets to discuss monetary policy. An announcement by the Fed will come at 2:15 p.m. Every economist surveyed by Action Economics expects a 25 basis point hike in the federal funds rate, to 4%. Most economists also believe the central bank will raise rates through the end of Chairman Alan Greenspan's term. The consensus forecast is for the Fed funds rate to stand at 4.5% after the Jan. 31 meeting. That January FOMC meeting will be the last of Chairman Greenspan's tenure.

EARNINGS REPORTS

Tuesday, Nov. 1

Ameren Corp., Apartment Investment & Management, BJ Services, CMS Energy, Colgate-Palmolive, Electronic Arts, Electronic Data Systems, Emerson Electric, Entergy, Equity Office Properties Trust, Equity Residential, FPL Group, Lincoln National, Marsh & McLennan, Masco, MBIA, Medco Health Solutions, Molson Coors Brewing, Procter & Gamble, ProLogis Trust, Qwest Communications, Rowan Companies, Sun Microsystems, Symantec, Tenet Healthcare, TXU, UnumProvident, Viacom, Vornado Realty Trust, and more.

VEHICLE SALES

Tuesday, Nov. 1

Vehicle sales lost more steam in October. According to WardsAuto.com, sales are expected to have slowed to an annual pace of 15.9 million vehicles, after easing to 16.4 million in September, from 16.8 million in August and 20.9 million in July. The end of employee pricing discount programs, higher energy prices, and softening consumer confidence are all negative factors for light vehicle sales. WardsAuto.com does expect some improvement in sales in the final two months of the year but that may depend on energy prices.

ICSC-UBS STORE SALES

Tuesday, Nov. 1, 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 period ending Oct. 29. During the week ended Oct. 22, retail sales eased 0.2%, after rising 0.4% in the previous week and 0.2% during the week of Oct. 8.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Nov. 1, 8:55 a.m. EST

This weekly measure of retail activity will report on sales through the fourth and final fiscal week of October, ended Oct. 29. Through the first three weeks of October, sales were up 1% compared with the same period in September. For the entire month of September, sales rose 0.4%.

ISM SURVEY

Tuesday, Nov. 1, 10 a.m. EST

The Institute for Supply Management's October index of industrial activity is forecast to have slipped. The consensus estimate from Action Economics is for a reading of 57.5%. The September ISM index posted an unexpected gain to 59.4%. In August, the index fell to 53.6%, from 56.6% in July. Despite Hurricanes Katrina and Rita, manufacturers maintained a positive outlook. According to the ISM, higher energy prices were a major concern for respondents but manufacturing activity was regaining momentum.

The underlying indexes were just as strong as the headline figure. New orders and production posted strong gains. New export orders were also stronger with a September level of 56.9%, from 53.3% in August. The index tracking unfilled orders also bounced back, reaching 55%. The September level was the highest since March. The improved activity translated into a stronger reading for employment. The September employment index was 53.1%, after an August level of 52.6%.

CONSTRUCTION SPENDING

Tuesday, Nov. 1, 10 a.m. EST

Construction outlays probably picked up some steam during September. According to Action Economics, spending rose 0.8% during the month, after rising 0.4% in August, 0.3% in July, and falling 0.5% in June. Compared with the same period a year ago, August construction outlays were up 6.1%.

Private construction was the major source of increased spending in August. Residential construction grew 0.2%, after holding steady in the prior period and falling 0.4% in June. Construction spending on lodging jumped 3.2%, after a 1.7% rebound in July, following a 6.6% plunge in June. Government outlays grew 0.5%, after a 0.6% increase in July. Public spending on construction projects should remain strong as funds go to rebuilding the hard hit Gulf Coast region, as well as to transportation and energy projects.

EARNINGS REPORTS

Wednesday, Nov. 2

BMC Software, CIGNA, Cincinnati Financial, Citizens Communications, Devon Energy, DTE Energy, Duke Energy, EOG Resources, Mercury, Parametric Technology, PG&E, Prudential Financial, QUALCOMM, Sempra Energy, Symbol Technologies, Time Warner, Univision Communications, Watson Pharmaceuticals, and more.

MORTGAGE APPLICATIONS

Wednesday, Nov. 2, 7 a.m. EST

The Mortgage Bankers Association releases its numbers on mortgage applications for both home buying and refinancing for the week ending Oct. 28. The purchase index fell to 466.4 in the week ended Oct. 21, after climbing to 503.9 in the week ended Oct. 14, from 469.5 in the prior period. The four-week moving average edged down to 478.4, from 482.6 for the week ended Oct. 14.

The average rate on a conventional 30-year fixed mortgage, according to HSH Associates, rose to 6.17% in the week ended Oct. 14 after rising to 6.13% during the week ended Oct. 7.

The MBA's refi index dropped. In the week ended Oct. 21, the index was 1916.8, after rising to 2095.7 during the previous week, from 2004.9 in the week ended Oct. 7. The four-week moving average declined to 2031.2, from 2078.7 in the week ended Oct. 14. The four week moving average has fallen for five straight weeks.

MEETINGS OF NOTE

Thursday, Nov. 3

U.S. Treasury Secretary John Snow, Federal Reserve Board Vice Chairman Roger Ferguson, and International Monetary Fund Managing Director Rodrigo de Rato speak at the Cato Institute's Annual Monetary Conference entitled "Monetary Institutions and Economic Development" in Washington, D.C.

10 a.m. EST

Federal Reserve Board Chairman Alan Greenspan testifies on the economic outlook before the Joint Economic Committee of Congress in Washington, D.C.

EARNINGS REPORTS

Thursday, Nov. 3

AmeriSourceBergen, Aon Corp., Becton Dickinson, Calpine, CenterPoint Energy, Clorox, Comcast, Computer Sciences, CVS, Dominion Resources, Fluor, Harrah's Entertainment, Hartford Financial Services, Hercules, RR Donnelley, Sabre Holdings, Sanmina-SCI, Sara Lee, Sunoco, Williams Companies, and more.

JOBLESS CLAIMS

Thursday, Nov. 3, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Oct. 29 is forecast to be 330,000, according to Action Economics. Jobless claims eased a little further, to 328,000, from 356,000 in the prior week, and 391,000 for the week ended Oct. 8.

The four-week moving average eased to 366,500 in the week ended Oct. 22, after slipping to 376,500 in the week ended Oct. 15, from 396,300 for the week of Oct. 8. Continuing jobless claims for the week ended October 15 drifted up to 2.9 million, from 2.86 million in the week ended Oct. 8.

PRODUCTIVITY AND COSTS

Thursday, Nov. 3, 8:30 a.m. EST

The first look at nonfarm productivity growth for the third quarter, measured as output per hour worked, most likely showed some improvement. The median forecast of economists queried by Action Economics is for an annualized growth rate of 2.4%. In the second-quarter, productivity improved by an annualized rate of 1.8% following a first quarter pace of 3.2%. Productivity growth for the full year of 2004 was 3.4%.

Quarterly unit labor costs are forecast to have eased to an annual rate of 1.7% in the third period. In the second quarter, nonfarm unit labor costs rose at a rate of 2.5%, after a 2.2% increase in the previous quarter. Costs grew 1.1% for all of 2004.

MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS

Thursday, Nov. 3, 10 a.m. EST

Factory orders probably fell by 0.1% during September. That's the consensus estimate from Action Economics. The orders data fights with the positive figures of the September national and regional manufacturing activity indexes. In August, orders bounced back with a 2.5% increase, following a 2.5% fall in July and gains of 0.9% and 4.2% in June and May, respectively.

The September published data on durable goods orders retreated 2.1%, after a 3.8% surge in August and a 5.8% fall in July. A sizeable chunk of the decline was the result of a 41.6% tumble in nondefense aircraft orders. Capital goods orders less civilian aircraft orders were off 1.2%. Stripping out defense equipment and the volatile aircraft sector gives a better sense of business investment and confidence.

ISM NON-MANUFACTURING SURVEY

Thursday, Nov. 3, 10 a.m. EST

The Institute for Supply Management issues its October index of business activity in the mostly services, non-manufacturing sector. The median forecast of economists polled by Action Economics is for a reading of 57%. The September index dropped to 53.3%, from 65% in August. The September retreat was the result of higher energy prices and uncertainty caused by Hurricanes Rita and Katrina. Respondents feared material shortages resulting from rebuilding efforts in the hard hit Gulf Coast area, as well as port disruptions.

The new orders index slowed to 56.6%, from 65.8% in August. Orders from abroad appeared to grow at a slower pace in September. The index tracking prices paid rocketed up to a record reading of 81.4%, from 67.1% in August.

MEETING OF NOTE

Friday, Nov. 4 - Saturday. Nov. 5

U.S. President George W. Bush attends the Summit of the Americas and meets with Argentine President Nestor Carlos Kirchner in Mar del Plata.

EARNINGS REPORTS

Friday, Nov. 4

KeySpan, TECO Energy, and more.

EMPLOYMENT REPORT

Friday, Nov. 4, 8:30 a.m. EST

The October employment report should show some rebound from the weak September figures influenced by Hurricane Katrina. The median forecast from Action Economics calls for October payrolls to post a gain of 110,000, after a fall of 35,000 in the prior month. At the same time, the September report showed upward revisions to August and July figures to a tune of 112,000 additional jobs.

Despite the anticipated turnaround for payrolls as a whole, manufacturers are expected keep trimming jobs. The October consensus is for a decline of 10,000 factory jobs, after a drop of 27,000 in September.

Even with the expected improvement in payrolls, the jobless rate most likely held at 5.1% for a second month, after standing at 4.9% in August. Average hourly pay is expected to have increased 0.2% for a second straight month. Average hourly wages growth has hovered around 2.6% compared with the same period a year ago for more than a year.

MEETING OF NOTE

Saturday, Nov. 5 - Sunday, Nov. 6

U.S. President George W. Bush meets with Brazilian President Luiz In?io Lula da Silva By James Mehring


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