Vital Signs for the Week of Nov. 28


The economy is showing signs of renewed vigor. Factories are humming, consumers are regaining their confidence, and there are expectations of increased hiring. This week's bevy of economic data is expected to verify the U.S. economy has gotten past the hurricanes and soaring energy prices to regain its earlier form seen in the summer.

The most important report will be the November employment numbers. Payrolls fell in September and missed expectations in October. Economists have keyed on falling claims as an indication that businesses have begun to hire again in response to increased activity. The Institute for Supply Management's business activity indexes have also pointed to jobs gains, especially in the manufacturing sector. A faster pace of job growth is important for consumer spending and would reflect increased business confidence.

Consumer and business and demand data are expected to validate the need for increased hiring. Personal consumer spending is forecast to have risen 0.2% in October, but the number should look a bit better when auto sales are taken out. October retail sales less autos were up 0.9%.

The October durable goods orders report is forecast to rebound and the ISM's November factory activity index probably eased but should remain at a relatively healthy level. The October new orders index was at 61.7%, far above the historical average of 54%.

Economists will also take a look at the Federal Reserve's Beige Book report for anecdotal evidence that the economy is strengthening. The report will help provide a regional breakdown of how the economy is doing, in particular what the Atlanta and Dallas Federal Reserve banks say about the Gulf Coast region.

One area where concerns are growing is in housing. While the Fed's minutes from the Nov. 1 monetary policy meeting call into question how much longer it will keep raising interest rates, economists still believe the Fed funds rate will increase another 50 basis points by the end of January. That would put more pressure on mortgage rates and home sales.

Already there are signs that the housing market has finally peaked. The November National Association of Home Builders' monthly housing index tumbled to 60, from 68 in October. New and existing home sales are seen drifting a little lower in October, but a truer picture of the housing market will come in January after the holiday season.

Here's the weekly economic roundup.

EXISTING HOME SALES

Monday, Nov. 28, 10 a.m. EST

Existing home sales in October probably slowed to an annual pace of 7.2 million. That's the median forecast from economists surveyed by Action Economics. The National Association of Realtors reported sales of 7.28 million in September and August, after dipping to a rate of 7.15 million in July, from a record 7.35 million in June.

The supply of existing homes up for sale held at 4.7 months for a second month. While sales have crept higher during the year, the supply of available homes have been trending higher as well.

ICSC-UBS STORE SALES

Tuesday, Nov. 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 period ending Nov. 26. Retail sales rebounded with a 1% gain, following a 0.6% dip during the week ended Nov. 12.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Nov. 29, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the fourth and final fiscal week of November, ended Nov. 26. Comparing the initial three weeks of November to the same period in October, sales were up 0.1%. For the entire month of October, store sales were up 1.3% from September.

DURABLE GOODS ORDERS

Tuesday, Nov. 29, 8:30 a.m. EST

New orders for durable goods probably bounced back 1.5% during October, according to the consensus estimate from Action Economics. In September, orders fell 2.4%, brought down in large part by a 41.8% plunge in civilian aircraft orders. Strip away transportation orders and the September decline was 1.1%. Durable goods orders rose 3.4% in August, and fell 5.4% in July.

Industrial orders are normally volatile, but the recent swings have been enhanced by hurricanes and the September strike of commercial jet workers at Boeing (BA). Overall, demand remains steady.

Unfilled orders have been rising, up 0.7% in August and 1.2% excluding transportation equipment. A rising level of unfilled orders is keeping manufacturers busy. National and regional factory activity indexes have held up in recent months and the November figures are expected to remain at healthy levels.

NEW RESIDENTIAL SALES

Tuesday, Nov. 29, 10 a.m. EST

New single-family home sales probably came in at an annual rate of 1.2 million homes in October. That's the consensus view from Action Economics.

Sales climbed back to a rate of 1.22 million in September, from 1.2 million in August. The July pace of sales was a record 1.35 million. Seasonally-adjusted sales in the Northeast and West have shown a significant slowdown in the past two months, while the South and Midwest have been holding strong. In the Northeast, September sales came in at an annual pace of 56,000, from 70,000 in August, and 95,000 in July. In the West, the September sales fell to a rate of 299,000, from 339,000 in August, and 428,000 in the prior month.

CONSUMER CONFIDENCE INDEX

Tuesday, Nov. 29, 10 a.m. EST

The Conference Board's November index of consumer confidence is forecast to have improved to 90, say economists polled by Action Economics.

The October index cooled to 85, the lowest level since October of 2003. In September, the index was 87.5, down from 105.5 in August. The recent slide most likely reflected consumer sticker shock to higher energy prices and a reaction to the extensive damage from this year's hurricane season.

Falling gasoline prices should give a boost to consumer confidence indexes. A steady return of consumer confidence to pre-hurricane levels would be a reassuring indicator for holiday consumer spending. However, consumer confidence readings have not correlated well with actual spending patterns of U.S households in recent years.

MEETINGS OF NOTE

Wednesday, Nov. 30, 8:45 a.m. EST

Federal Reserve Bank of St. Louis President William Poole speaks about Federal Reserve communication at a panel discussion in London.

12:15 p.m. EST

Federal Reserve Board Governor Susan Schmidt Bies gives a luncheon address at a Standard & Poor's conference on credit trends and risk management in New York City.

MORTGAGE APPLICATIONS

Wednesday, Nov. 30, 7 a.m. EST

The Mortgage Bankers Association releases its numbers on mortgage applications for both home buying and refinancing for the week ending Nov. 25. The purchase index fell back to 472.3 in the week ended Nov. 18, after popping up to 477.9 in the prior week, from 465.7 for the period ended Nov. 4, and 437.6 in the week ended Oct. 28. The four-week moving average moved up to 463.4, from 461.9 during the week ended Nov. 11.

The average rate on a conventional 30-year fixed mortgage, according to HSH Associates, kept climbing. For the week ended Nov. 18, the rate was 6.46%, down slightly from 6.48% in the week ended Nov. 11.

The MBA's refi index is feeling the effects of recent mortgage rate increases, tumbling to 1584.1, from 1702.4 over the week ended Nov. 18, after falling to 1798.8 during the period ended Nov. 4. The four-week moving average declined further, to 1737, from 1820.2 for the week ended Nov. 11.

GROSS DOMESTIC PRODUCT

Wednesday, Nov. 30, 8:30 a.m. EST

The preliminary report on economic growth for the third quarter of 2005, measured by real gross domestic product, is expected to show some upward revisions. The consensus among economists polled by Action Economics is an annualized growth rate of 4%, from an initial 3.8%. The erosion of inventories may end up being less of a drag than first reported, but the record September trade deficit could cause foreign trade to be more of a drag than first reported.

CHICAGO PURCHASING MANAGERS SURVEY

Wednesday, Nov. 30, 10 a.m. EST

The Chicago-area purchasing managers' index of industrial activity in the Midwest probably cooled off some during November. The consensus estimate among economists queried by Action Economics is for a reading of 60.4%, still a historically healthy level. The September index rebounded to 62.9%, from 60.5% for September, after an August blip of 49.2%.

The new orders, production, and order backlogs indexes all posted gains for a second straight month. The new orders index reached 72.6% in October, from 63.4% in September, and 56.2% in August. The backlogged orders index hit 56.9% in October, the best reading in a year.

BEIGE BOOK

Wednesday, Nov. 30, 2 p.m. EST

The Federal Reserve will release its compilation of regional economic activity, based on survey responses from each of its 12 districts. The Beige Book comes ahead of the Dec. 13 monetary policy meeting. Analysts will be looking for further proof that the economy is picking up the pace in light of easing energy prices and largely positive economic reports during November. Economists queried by Action Economics expect yet more 25 basis-point rate hikes, to 4.25% in December and 4.5% after the Jan. 31 Open Market Committee meeting.

MEETING OF NOTE

Thursday, Dec. 1, 8:30 a.m. EST

U.S. Treasury Office of Debt Management Director Jeff Huther speaks about the Treasury Dept.'s proposal for a securities lending facility at the Bond Market Association's Securities Lending and Repo Conference in New York City.

EARNINGS REPORTS

Thursday, Dec. 1

Novell, and more.

VEHICLE SALES

Thursday, Dec. 1

Vehicle sales probably edged up in November, but remained at a sluggish pace. According to WardsAuto.com, sales are expected to have slowed to an annual pace of 15.5 million vehicles, even with renewed incentive programs by domestic auto makers. The October sales pace slumped to a pace of 14.7 million units, the weakest pace since August of 1998. The September rate was 16.4 million.

JOBLESS CLAIMS

Thursday, December 1, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Nov. 26 are expected to be 322,000, according to economists polled by Action Economics. Jobless claims bounced back to 335,000, after sinking to 303,000 for the week of Nov. 12, from 328,000 for the week ended Nov. 5. There still appear to be some weather-related influences.

The increase put the four-week moving average at 323,250, up from 322,000 in the week ended Nov. 12. Continuing jobless claims for the week ended Nov. 12 climbed to 2.82 million, from a downwardly adjusted 2.77 million in the week ended Nov. 5.

PERSONAL INCOME AND CONSUMER SPENDING

Thursday, Dec. 1, 8:30 a.m. EST

Personal income probably grew at a healthy clip in October. The consensus estimate from Action Economics is for a 0.5% increase. The September figure was up 1.7%, after a 0.9% drop in August. The recent income figures have been skewed by the hurricanes and their effect on rental income, insurance payments, and government funds to persons in the hard-hit Gulf Coast region. Compared to a year ago, income picked back up to a growth rate of 6.3% in September, after slowing to 4.8% in August, from 6.3% in July.

Soft auto sales were most likely a drag on consumer spending, with the consensus estimate from Action Economics calling for a 0.2% rise. Judging by the October retail sales report, spending was probably firm outside of autos. September consumer expenditures rose 0.5%, after an August dip of 0.5%. Consumer spending in August declined as the end of "employee pricing" incentives caused vehicles sales to slow sharply. The yearly growth rate of consumer spending was 6.7% in September, down from 6.8% in August and 7.4% during July.

The report also includes personal consumption expenditures (PCE) price indexes, which are closely followed by the Federal Reserve. In September, the PCE surged 0.9% after a 0.4% gain in August. Compared to the same period a year ago, the September figure was 3.8%, from 2.9% in August. Less food and energy, the September PCE index was up 2% from a year ago, the same as August. In both July and June the yearly rise was 1.9%.

ISM SURVEY

Thursday, Dec. 1, 10 a.m. EST

The Institute for Supply Management's November index of industrial activity is forecast to have eased a little. The consensus estimate from Action Economics is for a reading of 58%. The October index stood at 59.1%, after rising to 59.4% in September, from 53.6% in August. The October industrial production numbers appear to have validated the surprising resilience of recent ISM readings.

There was some easing in the new orders, export orders, and production indexes but all three remain at relatively strong levels. The index of unfilled orders edged up to 55.5%, from 55% in September. The employment index rose to 55%, from 53.1% in September. The underlying indexes show continued strength within manufacturing.

The inventories index fell to 48.1%. It was the seventh straight month the index has run below 50%, indicating more manufacturers than not are seeing their inventory levels declining. Given the trend in inventories and the level of demand, some replenishing of warehouses appears imminent.

CONSTRUCTION SPENDING

Thursday, Dec. 1, 10 a.m. EST

Construction outlays are forecast to have risen at a solid pace in October. According to Action Economics, construction spending grew 0.4%, after rising 0.5% in September and 0.6% in both August and July. Compared to the same period a year ago, August construction outlays were up 6.8%

Private residential construction stormed back with a 1% jump in September, after a 0.1% gain in August. Public outlays were unchanged in September, after a 0.4% rise in the prior month. Public construction spending should pick up as funds go to rebuilding in the wake of this year's hurricanes.

MEETINGS OF NOTE

Friday, Dec. 2, 9 a.m. EST

Federal Reserve Board Chairman Alan Greenspan takes part via satellite in a forum entitled "Fiscal Imbalance: Problems, Solutions, and Implications." The discussion will be moderated by Philly Fed President Anthony Santomero in Philadelphia.

2 p.m. EST

Federal Reserve Bank of San Francisco President Janet Yellen speaks about the U.S. economy before the California Chamber of Commerce board in San Francisco.

EMPLOYMENT REPORT

Friday, Dec. 2, 8:30 a.m. EST

The November employment figures are expected to be quite upbeat. The consensus estimate from Action Economics is for a November increase in nonfarm payrolls of 209,000. In October, businesses added just 56,000 jobs.

The Labor Dept. stated that the tepid October job numbers were not affected by Hurricane Katrina, but rather below trend job growth in the rest of the country. At the same time, the number of employed persons who did not work due to bad weather stood at 130,000 in October. That was down from 210,000 in September, but still considerably above the 81,000 in October of last year.

Factory payrolls are expected to grow by another 5,000 in November, after an increase of 12,000 in October. From June through September, factory payrolls had contracted by 69,000 workers and were still off by 100,000 from a year ago in October.

The jump in jobs is not expected to push the unemployment rate lower. In October, the jobless rate fell to 5%, from 5.1% in September. Average hourly pay most likely rose 0.2%, after a 0.5% jump in October, and a 0.1% increase during September. In October, average hourly wages were up 2.9% from a year ago. Yearly growth in hourly wages has hovered around 2.7% for more than a year. By James Mehring


Steve Ballmer, Power Forward
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