Key US Data Releases and Events

The Federal Open Market Committee (FOMC) meeting this week has particular significance because the committee appears to be at a crossroads with regards to the direction of monetary policy. Minutes from the March meeting indicate that support for another round of quantitative easing is dwindling, and that some Fed members would only agree to it if the outlook for the economy deteriorated. But Bernanke continues to keep the door open to further easing and recent data support his view that strong employment gains at the beginning of the year may not be sustained. We do not expect any changes to policy at this meeting—this means no changes to the forward guidance to keep the federal funds rate at the zero bound until late-2014, and no announcement on QE III or any expansion of the balance sheet. “Operation Twist” will continue through June as planned. Meanwhile, the committee’s statement, Bernanke’s press conference, and updated forecasts will be sifted for clues about future policy. The March minutes indicated that GDP growth projections were revised up and that estimates of potential GDP were revised down, meaning that the Fed sees less slack in the economy than previous thought. If so, the Fed’s inflation forecasts could also be revised up. Finally, it will be interesting to see if any FOMC members join the ranks of those who think that the federal funds rate should be raised prior to 2015. Currently, 6 out of 17 members think that the initial rate hike should come before 2014, while 8 members think the funds rate should return to 1% by the end of 2014.

On the data front this past week (April 16–20), the March retail sales report was the bright spot, increasing by more than expected despite higher gasoline prices. Warm weather and iPads were behind the positive results, but a modest pace of spending growth is expected to persist. Housing starts saw a correction in the hot multifamily segment of the market in March, although multifamily permits were up. Single-family construction, however, languished. Existing home sales unexpectedly fell in March despite higher contract signings in January–February. Investors and distressed sales accounted for much of the decline. Industrial production was flat in March, as stronger utilities output offset a decline in manufacturing. The regional Empire State and Philadelphia Fed manufacturing surveys slumped in April, possibly indicating another weak month for that sector. Finally, initial unemployment claims fell much less than expected this week, raising the four-week moving average.

The main piece of data this coming week (April 23–27) is the advance estimate for first-quarter GDP. We expect growth of 2.7%, with more of a contribution from final sales than the inventory-fueled fourth quarter. Projections were revised higher recently on better defense spending, inventory accumulation, and lower imports. Both the Conference Board Consumer Confidence Index and the Reuters/University of Michigan Index of Consumer Sentiment should show improvement in April, but more so in the Conference Board measure, which is more sensitive to employment gains. The S&P/Case-Shiller Home Price Index likely fell again in February, but year-on-year declines are seen narrowing slightly. New home sales are seen inching up in March, but still just bouncing around a bottom.

Tuesday, April 24 – S&P/Case-Shiller Home Price Index (Feb.)

• IHS Global Insight: -3.7% y/y
• Consensus: -3.5% y/y
• Last Actual: -3.8% y/y (Jan.)

What to Look For

• Another leg down in home prices continues

Implications

February’s reading should be similar to January’s. We are expecting the seasonally adjusted 20-city composite index to fall 0.2% month over month. This translates into a 3.7% year-on-year decline, a bit narrower than in January.

Tuesday, April 24 – Conference Board Consumer Confidence (Apr.)

• IHS Global Insight: 74.0
• Consensus: 69.5
• Last Actual: 70.2 (Mar.)

What to Look For

• More confidence thanks to improved job market prospects

Implications

The Conference Board's Consumer Confidence Index likely gained 3.8 points in April, as improvement in job prospects outweighed rising gasoline prices.

Tuesday, April 24 – New Home Sales (Mar.)

• IHS Global Insight: 0.337 Mil.
• Consensus: 0.320 Mil.
• Last Actual: 0.313 Mil. (Feb.)

What to Look For

• Better sales, but still weak

Implications

Single-family building permits have picked up over the last six months, and builder sentiment in March was at its highest level since May 2007. We expect that homebuilders are responding to a slight improvement in demand and that new home sales rose in March to a 337,000 annual rate.

Wednesday, April 25– Durable Goods Orders (Mar.)

• IHS Global Insight: -3.0%
• Consensus: -1.5%
• Last Actual: +2.2% (Feb.)

What to Look For

• A big slump in aircraft orders

Implications

March should see a large reversal of February’s gains, as plunging aircraft orders and retrenchment in defense orders outweigh all positive contributions. Although the giant aircraft producer has had a great streak since November 2011, orders were bound to slow—in March, orders for Boeing fell nearly $14 billion. As a result, we expect total durable goods orders to decrease by 3.0%.

Wednesday, April 25 – FOMC Press Release/Press Conference

Effective Federal Funds Rate

• IHS Global Insight: 0.00–0.25%
• Consensus: 0.00–0.25%
• Last Actual: 0.00–0.25%

What to Look For

• Any change to Fed members’ views on the appropriate path for the fed funds rate

Implications

No changes to policy are expected to come out of this meeting. But the FOMC’s economic forecasts will be revised and members’ views on the appropriate path of policy could show more support for a rate hike prior to late 2014. Bernanke will also hold a press conference following the release of the statement.

Friday, April 27 – Employment Cost Index (Q1)

• IHS Global Insight: 0.5%
• Consensus: 0.5%
• Last Actual: 0.4% (Q4)

What to Look For

• A 0.5% rise in employment costs in the fourth quarter

Implications

Inflation in the labor market is subdued because the unemployment rate remains high. Employment costs for civilian workers rose 0.4% in the fourth quarter of 2011. As a result, we are expecting a slightly stronger reading in the first quarter.

Friday, April 27 – Real Gross Domestic Product (Advance Estimate, Q1)

• IHS Global Insight: 2.7%
• Consensus: 2.5%
• Last Actual: 3.0% (Q4)

What to Look For

• Higher consumption and growth in residential construction

Implications

First-quarter real GDP should climb by 2.7%. Estimates have been revised up recently due to higher defense spending, more inventory additions, and lower imports. Compared with the fourth quarter, growth in the first quarter was driven more by gains in final sales and less by inventories. It could also be the best quarter for residential construction in almost two years. Nevertheless, consumer spending would probably have been stronger had a hyper-mild winter not cooled natural gas and electricity consumption.

Friday, April 27 – Reuters/University of Michigan Index of Consumer Sentiment (Final Apr.)

• IHS Global Insight: 76.4
• Consensus: 75.5
• Last Actual: 75.7 (Preliminary April)

What to Look For:

• Some recovery from early-month decline

Implications

The Reuters/University of Michigan index of Consumer Sentiment should inch up from an early-month decline, but barely surpass March's final reading. The gain will be significantly smaller than the Conference Board's measure, which is more responsive to the previous month's unemployment rate and equity market gains.

by Paul Edelstein