Vital Signs for the Week of Dec. 19


The week ended Dec. 16 was a good one for U.S. markets, given the generally upbeat news on the economy. In particular, the markets took solace in the Federal Reserve's words following its quarter-point hike in its target federal funds rate. The Fed appeared to be saying that its target rate, now at 4.25%, was at or very close to a neutral level that would neither stimulate nor restrict economic growth. If so, then the Fed's year-and-a-half-long policy tightening may be close to an end.

In the coming week, look for more signs that the housing boom is winding down but that the economy is ending the year on a solid note with inflation under control. November reports on housing starts on Tuesday and sales of new homes on Friday will offer the latest take on housing activity. Expect weaker sales than in October, but keep in mind that October sales jumped to a record level. November housing starts should hold at a high level, given a heavy backlog of home construction on the books but not yet begun.

Among other reports that the markets will be watching, November orders for durable goods on Friday should show continued strength in the manufacturing sector, and a Friday reading on consumer sentiment should show improved household attitudes after being depressed by the hurricanes and soaring energy costs. Now, with gasoline prices down sharply, consumers' buying power is regaining lost ground. That will be affirmed by the November producer price index on Tuesday, which is expected to drop as a result of the plunge in energy prices.

The bond market will close early on Friday, Dec. 23 in observance of the Christmas holiday. Here's the week's full calendar:

EARNINGS REPORTS

Monday, Dec. 19

Circuit City Stores, and more.

HOME BUILDERS SURVEY

Monday, Dec. 19, 1 p.m. EST

The National Association of Home Builders and Wells Fargo bank will release the December report. The survey updates housing market conditions by measuring builders' assessments of current sales, buyer traffic through model homes, and expected demand. In November, the activity index dropped to 60, the lowest level since May of 2003. In October, the index popped back up to 68, after falling for a third straight time in September, to 65.

The index tracking single-family home sales dipped to 66, from 74 in October, and 72 in September. Expectations for sales in the coming six months retreated to 64, from 73 in October, and 70 in the prior month. The latest reading for prospective buyer traffic was 46, from 51 in October.

EARNINGS REPORTS

Tuesday, Dec. 20

Morgan Stanley, Nike, and more.

ICSC-UBS STORE SALES

Tuesday, Dec. 20, 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 Dec. 17. Sales bounced back with a 0.9% gain, following a 3.1% drop for the week ended Dec. 3, and a 0.7% decline for the week ended Nov. 26.

PRODUCER PRICE INDEX

Tuesday, Dec. 20, 8:30 a.m. EST

Producer prices for finished goods sold by U.S. businesses are expected to have slipped 0.5% in November. That's the consensus estimate among economists polled by Action Economics. The unexpectedly large 0.6% decline in the November consumer price index implies an increased chance for a larger-than-forecast decline in monthly producer prices.

In October, producer prices registered a 0.7% increase, following a 1.9% jump in the previous month, and a 0.6% gain in August. A further 4.1% increase in energy prices pushed the headline index higher, following a 7.1% jump for the month of September. October producer prices registered a 5.9% increase from a year ago, a deceleration from the 6.9% yearly increase in September.

Excluding food and energy costs, the core producer price index most likely eased 0.2%, after a 0.3% gain in September and no change in August. Compared with the same month a year ago, the October index of core producer prices slowed to a gain of 1.9%, from 2.6% for the period ended in September.

NEW RESIDENTIAL CONSTRUCTION

Tuesday, Dec. 20, 8:30 a.m. EST

The pace of housing starts in November is expected to have eased some more but to have remained at a relatively strong level. The median forecast of economists polled by Action Economics is an annual rate of 2 million homes.

In October, housing starts came in at an annual rate of 2.01 million, a small decline from the 2.13 million pace of September. Housing data appears to show that, on the whole, builders are adjusting to a softer housing market even if new home sales did hit a record monthly rate in October.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Dec. 20, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the third fiscal week of December, ended Dec. 17. In the first two weeks of December, ended Dec. 10, sales were off 0.3% from the same period in November. Sales during November ended up 0.3% better than the month of October.

EARNINGS REPORTS

Wednesday, Dec. 21

Bed Bath & Beyond, Biomet, Family Dollar, FedEx, Paychex, and more.

MORTGAGE APPLICATIONS

Wednesday, Dec. 21, 7 a.m. EST

The Mortgage Bankers Association releases its numbers on mortgage applications for both home buying and refinancing for the week ending Dec. 16. The purchase index fell to 477.9 in the week ended Dec. 9, from 495.1 in the week ended Dec. 2. The four-week moving average held at 480.4, from 473.0 during the week ended Nov. 25.

The average rate on a conventional 30-year fixed mortgage rose, according to HSH Associates. For the week ended Dec. 9, the rate was 6.45%, from 6.37% for the week ended Dec. 2.

The MBA's refi index also dropped. During the week ended Dec. 9, the refi index slowed to 1441.8 for the period ended Dec. 9, after picking up to 1596.4 in the previous week. The four-week moving average kept on falling. The average was at 1526.7 during the week ended Dec. 9, from 1591.8 in the prior period.

GROSS DOMESTIC PRODUCT

Wednesday, Dec. 21, 8:30 a.m. EST

The final report on economic growth for the third quarter of 2005, measured by real gross domestic product, is expected to remain at 4.3%. That's the consensus among economists queried by Action Economics. The initial reading in October was an annualized growth rate of 3.8%.

EARNINGS REPORTS

Thursday, Dec. 22

General Mills, Solectron, and more.

JOBLESS CLAIMS

Thursday, Dec. 22, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Dec. 17 probably edged lower to 325,000. That's the consensus among economists queried by Action Economics. Jobless claims edged up to 329,000, from 328,000 in the previous period and 321,000 for the week of Nov. 26.

The four-week moving average also turned higher, reaching 328,750 for the week ended Dec. 10, from 322,750 for the week ended Dec. 3. Continuing jobless claims for the week ended Dec. 3 stood at 2.61 million, up slightly from 2.59 million in the week ended Nov. 26.

PERSONAL INCOME AND CONSUMER SPENDING

Thursday, Dec. 22, 8:30 a.m. EST

Personal income is forecast to have increased 0.3% in the month of November. That's the consensus estimate from Action Economics. In October, income increased 0.4%. Hurricane Katrina led to a big distortion in rental income, as well as insurance payments and government payments to Gulf-Coast residents, that caused September income to post a 1.7% jump, after an August income decline of 1%. Compared with a year ago, income eased to a pace of 5.3%, after bouncing up to 6% in September, from 4.4% in August.

Consumer spending is expected to have increased 0.4%, following a 0.2% monthly gain in October, and a 0.5% rise in September. Vehicle sales were still soft in November, but managed to improve to an annualized pace of 15.7 million units, from a rate of 14.7 million light vehicles in October. The Commerce Dept. reported November retail sales growth of 0.3% despite lower gasoline prices causing a 5.9% plunge in gas station sales. The yearly growth rate of consumer spending was 6.1% in October, down from 6.8% in September.

The report also includes personal consumption expenditures (PCE) price indexes, closely followed by the Federal Reserve when in comes to gauging inflationary pressures. The October PCE index nudged up by 0.1%, after a 0.9% jump in September. The recent gains in the top-line reading of inflation have been energy driven. Less food and energy, the price index rose 0.1% in October, and 0.2% in September. Compared with the same period a year ago, the October index stood 3.3% higher, a deceleration from the 3.7% yearly increase of September. Less food and energy, the October PCE index was up 1.8% from a year ago, compared with 2% in September.

LEADING INDICATORS

Thursday, Dec. 22, 10 a.m. EDT

The Conference Board's November composite index of leading economic indicators most likely posted a 0.4% increase, say economists polled by Action Economics. The October leading index bounced back with a 0.9% rise, after a 0.8% fall in September. The October leading index was up 2% compared with the same period a year ago, after cooling down to a yearly increase of 1.1% in September.

In June, the Conference Board adjusted its leading index. The biggest change was how the spread between the 10-year Treasury bond and the Fed funds rate affects the leading indicators index. The yield curve has a negative impact on the index only if the short-term rate rises above the long-term rate. A smaller positive gap between the long-term and short-term rate just means a smaller positive contribution.

DURABLE GOODS ORDERS

Friday, Dec. 23, 8:30 a.m. EST

New orders for durable goods kept growing in November. According to the consensus estimate from Action Economics, new orders rose 0.9%, after an October rebound of 3.7%. In September, orders fell 2.0%, due in large part to a 41.5% plunge in civilian aircraft orders. Industrial orders are volatile by nature, but the recent swings have been compounded by hurricanes and the September strike of commercial jet workers at Boeing. The November industrial production report and other recent manufacturing related data keep indicating strong demand for manufactured goods.

Unfilled orders are still growing, up 1.6% in September, after a 0.8% September increase. A rising level of unfilled orders will keep factory output humming and should lead to more hiring in the manufacturing sector, as well as increased levels of capacity utilization. With over 80% of factory capacity now in use some manufacturers could begin to face bottlenecks and isolated pockets of increased pricing power could emerge.

NEW RESIDENTIAL SALES

Friday, Dec. 23, 10 a.m. EST

New single-family homes sales are forecast to have slowed to an annual rate of 1.31 million homes in November. That's the consensus view from Action Economics. Sales jumped to a record rate of 1.42 million. Seasonally adjusted sales in the Northeast and West bounced back strongly in October as well, after a significant slowdown in the prior two months.

Nonetheless, most economists see a gradual slowdown in sales during the coming year and the National Association of Homebuilders expects a 5% to 6% fall in overall home sales next year.

CONSUMER SENTIMENT INDEX

Friday, Dec. 23, 10 a.m. EST

The University of Michigan's Survey Research Center will report its final reading of consumer sentiment for November. The median forecast from Action Economics calls for a reading of 89, off just a bit from the initial December reading of 88.7. The final November level was 81.6. The October final reading was 74.2.

Consumer inflation expectations have settled down. After climbing in the prior two months, the consumer expectations for inflation over the coming year settled back to summer levels, according to the University of Michigan. By James Mehring


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