Key US Data Releases and Events

For the past couple of weeks, Federal Reserve chairman Ben Bernanke has been sounding the alarm—in speeches and testimony to lawmakers—over the “fiscal cliff” that the country faces at the end of this year. Bernanke has even elevated it to a risk on a par with the Eurozone crisis. He is correct to do so. Come January 1, the Bush tax cuts, payroll tax cuts, and emergency unemployment benefits expire, while $1.2 trillion in sequestration spending cuts kick in. Together, this would amount to a half-trillion-dollar drag on the economy and could cost the economy 4.2 percentage points of real GDP growth in the first quarter of 2013. But do not expect the Fed to fill this economic crater by moving on QE III. The Fed has been clear that it is prepared to respond to negative shocks to employment and inflation. It is deeply reluctant (perhaps unwilling), however, to respond to a slow-moving, predictable, and completely avoidable failure of government policy. What’s more, it is highly unlikely that the Fed at this point could even lower interest rates enough to offset the hit to growth. Bernanke has stated that "there is absolutely no chance that the Federal Reserve would be able to have the ability whatsoever to offset that effect on the economy." So the door to QE III remains open should the economy falter, but not if a major lapse in fiscal policy is the culprit.

On the data front this coming week (May 14–18), inflation readings for April should show a negative impact from energy prices, but steady trend movements elsewhere. Year-on-year comparisons, meanwhile, are now strong enough to make the Fed reluctant to ease again. Retail sales likely hit a minor pothole in April after a strong first quarter. Industrial production, however, is expected to have rebounded last month after flat-lining in February and March. Better manufacturing and a rebound at utilities were behind this. Finally, recently stronger permitting points to increases in housing starts in April.

Also this coming week, the Fed will release minutes from its April 24–25 meeting. We learned from this meeting that the support for another round of quantitative easing diminished, as most Fed members expect a gradual acceleration in economic growth. Indeed, most members would need to see the opposite to support further easing. The minutes could elaborate on this shift in thinking. We might also see some discussion as to what Fed members would have to see in the economy for them to sign on to QE III, including some discussion on the appropriate response to next year’s “fiscal cliff” and the risks from the Eurozone crisis.

Tuesday, May 15 – Consumer Price Index (Apr.)

Total

• IHS Global Insight: -0.1%
• Consensus: 0.1%
• Last Actual: 0.3% (Mar.)

Core

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

What to Look For

• A slight decline in the headline CPI on gasoline price seasonality, and another 0.2% increase in the core

Implications

Consumer prices are forecast to fall 0.1% in April as gasoline prices, which rose about 4 cents per gallon, failed to match the normal seasonal rise. Gasoline's 3.6% April drop after seasonal adjustment was matched, or approximated, in other oil-based products and pulled energy down by 2.5%.

Tuesday, May 15 – Retail Sales (Apr.)

Total

• IHS Global Insight: -0.2%
• Consensus: 0.2%
• Last Actual: 0.8% (Mar.)

Less Autos

• IHS Global Insight: -0.2%
• Consensus: 0.2%
• Last Actual: 0.8% (Mar.)

What to Look For

• Some payback following weather-assisted spending in the first quarter

Implications

Retail sales likely contracted in April, after a relatively strong first quarter. There should be some payback, especially for building material, sporting goods, and clothing stores, which were boosted by unseasonably warm weather in recent months. With gasoline prices decreasing a bit, gasoline station sales will suffer. Light-vehicle unit sales inched up in April, and retail sales used to estimate consumer spending should remain above water, but exhibit weaker growth than in the past three months.

Wednesday, May 16– Housing Starts (Apr.)

Housing Starts

• IHS Global Insight: 0.689 Mil.
• Consensus: 0.680 Mil.
• Last Actual: 0.654 Mil. (Mar.)

Building Permits

• IHS Global Insight: 0.733 Mil.
• Consensus: 0.730 Mil.
• Last Actual: 0.764 Mil (Mar.)

What to Look For

• More housing starts, fewer building permits in April

Implications

March’s housing permit numbers—the highest since September 2008—point to higher housing starts in April and May. Our call is that starts climbed about 5% in April. Total permits will be down on a decline in multifamily permits, which jumped 26% in March.

Wednesday, May 16 – Industrial Production (Apr.)

Industrial Production

• IHS Global Insight: 0.7%
• Consensus: 0.5%
• Last Actual: 0.0% (Mar.)

Capacity Utilization

• IHS Global Insight: 79.1%
• Consensus: 79.0%
• Last Actual: 78.6% (Mar.)

What to Look For

• Industrial production should rise 0.7% in April, with an uptick in capacity utilization

Implications

A solid gain in light vehicles and a rebound in utility output should combine with expansion in core manufacturing to produce a 0.7% advance in total industrial production during April after two weak months. The utility gain is just a return to more normal weather from a record-warm March, but manufacturing production hours-worked advanced by 0.5% and light-vehicle production expanded to a 10.4-million-unit annual rate in April, from a 9.7-million rate in March. Total production hours-worked expanded in April across the vast majority of both durables and nondurable goods industries, suggesting a solid output gain.

by Nigel Gault and Paul Edelstein