Key US Data Releases and Events

The data this past week culminated with a disappointing jobs report. Payrolls expanded by much less than expected, while the unemployment rate fell but largely due to an exodus from the labor market. Does the March–April payroll slowdown change the outlook for monetary policy? Probably not. Most Federal Open Market Committee (FOMC) members would need to see deterioration in the economy to agree to another round of quantitative easing (QE III). This latest disappointment probably was not deep enough to change the members’ thinking. Some payback was expected this month following the “too good to be true” period of December–February. And there is a good chance that the April numbers will be revised up next month, as February and March numbers were this week. Meanwhile, the Commerce Department reported that labor productivity contracted in the first quarter, while unit labor costs increased for the fourth time since the beginning of 2011. FOMC members presumably took note, as this trend indicates that supply-side conditions could push inflation higher even if demand-side conditions restrain it. So markets are caught in an uncomfortable middle ground. The economy is not growing enough to generate substantial hiring, but is not weak enough to justify additional monetary stimulus. Meanwhile, modest inflation pressures are blooming. This could be the backdrop for markets over the remainder of the year.

The data calendar lightens this coming week (May 7–11), with only modest implications for monetary policy. The trade balance likely widened by about $5 billion in March, after a sharp narrowing in February, as imports rebound following the Chinese New Year. The Producer Price Index report will provide an initial reading on inflation in April. Food and energy prices were likely a drag last month, but core PPI inflation should hold steady at the average rate seen over the past six months. Finally, an early-May reading on consumer sentiment should show some mild deterioration in light of the disappointing jobs report, even as gasoline prices moved lower.

Thursday, May 10 – Trade Balance (Mar.)

• IHS Global Insight: -$51.1 Billion
• Consensus: -$50.0 Billion
• Last Actual: -$46.0 Billion (Feb.)

What to Look For

• Stronger imports and better exports

Implications

The foreign trade deficit is expected to widen to $51.1 billion in March, after a sharp contraction in February. Imports should bounce back from their February low, with industrial supplies leading the charge. In particular, we expect the oil import bill to soar on higher prices and a rebound in volumes. Consumer and capital goods imports should also contribute, while automotive goods decline. Exports are expected to press forward with small gains across all major subcategories, but the advance should be smaller than for imports. Despite being close to neutral for GDP growth in the first quarter, we expect foreign trade to be drag on growth for the year.

Friday, May 11 – Producer Price Index (Apr.)

Total

• IHS Global Insight: -0.1%
• Consensus: 0.0%
• Last Actual: 0.0% (Mar.)

Core

• IHS Global Insight: 0.2%
• Consensus: 0.2%
• Last Actual: 0.3% (Mar.)

What to Look For

• A drag from energy and food, but steady core inflation

Implications

Finished goods producer prices should ease 0.1%, as falling natural gas prices and mixed oil product prices cool the energy portion, albeit by less than in March. Food prices should creep lower by about as much as they rose in March, while core finished goods prices climb by 0.2%—close to the average of the past six months. Year-over-year gains in finished goods prices should cool further, as the strong inflation results from April 2011 fall off the back of the 12-month comparison.

Friday, May 11– Reuters/University of Michigan Consumer Sentiment Index (Preliminary May)

• IHS Global Insight: 75.1
• Consensus: 76.4
• Last Actual: 76.4 (Apr.)

What to Look For

• Some deterioration in attitudes about jobs prospects

Implications

The Reuters/University of Michigan Consumer Index likely fell 1.3 points to 75.1 in mid-May. The drop in gasoline prices was probably not enough to offset disappointment on jobs, as indicated by the April payroll results.

by Nigel Gault and Paul Edelstein