Key US Data Releases and Events

Oil prices are on the rise again and concerns are growing about their impact on the recovery. The situation is reminiscent of early 2011, when Brent oil prices reached $126/barrel, creating a growth pocket in the middle of the year. Currently, we are projecting an average of $115/barrel for Brent crude oil this year and 2.1% real GDP growth in our baseline macroeconomic forecast. Brent prices are currently at $125/barrel—$10/barrel above our assumption for the year. If oil prices stay persistently high or continue to rise, growth forecasts will likely be revised downward. But it would take a much bigger spike in prices to sink the US economy back into recession. Results from the IHS Global Insight model of the US economy suggest that this extra $10/barrel could shave a couple of tenths of a percentage point off of our real GDP growth forecast, from 2.1% to 1.9%. Job growth would still pick up compared to last year, but to a somewhat slower pace (of 1.4%, versus 1.5% currently projected). Inflation would jump this year, but fade in 2013. And even these results, based on $125/barrel Brent, are conditional on oil prices staying permanently higher and not falling back. The near-term path for oil prices is foggy at this time. Tensions with Iran could recede and renewed concerns over Europe would hurt confidence and boost the dollar, sending oil prices lower. If so, the impact on the broader economy could be even less severe.

The data calendar was light this week (February 21–24), although it offered further reasons for optimism about the economic recovery. Existing home sales were up in January, while new home sales held steady. But the real positive news was the declines in months’ supply of homes for sale, which should help to stabilize home prices. An early-February dent in Reuters/University of Michigan’s index of consumer sentiment disappeared in a late-month update. This was the first flat reading in several months, however, suggesting that rising gasoline prices are affecting consumers’ moods. Finally, initial unemployment claims were unchanged, defying expectations of a small increase. This is a good sign for the labor market, although unseasonably warm weather could be helping certain sectors.

The data centerpiece this week (February 27–March 2) will be the “second reading” on fourth-quarter real GDP, where growth is expected to be revised down slightly. However, the configuration of growth should actually improve, with more attributable to business capital investment and less to inventory accumulation. The January personal income and spending report should show a boost to incomes, thanks to a military pay raise and a Social Security cost-of-living increase, as well as higher spending, thanks to mild weather and improved jobs prospects and confidence. The ISM manufacturing index is expected to post a small gain, pointing to a mild acceleration in the manufacturing recovery during February. Home prices are seen falling again in the S&P/Case-Shiller index for December, widening the year-over-year declines. Motor vehicle sales were likely strong in February—but not as strong as in January—thanks to mild weather, and despite higher gasoline prices.

Tuesday, February 28 – Durable Goods Orders (Jan.)

• IHS Global Insight: +1.1%
• Consensus: -1.1%
• Last Actual: +3.0% (Dec.)

What to Look For

• Orders should rise on aircraft, with defense the wildcard

Implications

Strength likely centered on aircraft orders, which countered normal first-month-of-quarter weakness in turbines and drag from other machinery categories that surged in December. Core capital goods orders will likely be restrained because of machinery, but otherwise grow respectably. Defense orders could provide a major boost after a soft December.

Tuesday, February 28 – S&P/Case-Shiller Home Price Index (Dec.)

• IHS Global Insight: -4.0% y/y
• Consensus: -3.7% y/y
• Last Actual: -3.7% y/y (Nov.)

What to Look For

• Another step down in home prices

Implications

Year-on-year comparisons will likely deteriorate further, incorporating a projected 0.7% monthly drop in the seasonally adjusted 20-city composite index, same as in November.

Tuesday, February 28 – Conference Board Consumer Confidence (Feb.)

• IHS Global Insight: 68.0
• Consensus: 62.7
• Last Actual: 61.1 (Jan.)

What to Look For

• A boost to confidence on improved jobs prospects

Implications

Consumer confidence should get a nice bounce from strengthening labor market conditions. Gasoline prices will be a drag, but not enough to offset better jobs.

Wednesday, February 29– Real Gross Domestic Product (Second estimate, Q4)

• IHS Global Insight: 2.7%
• Consensus: 2.8%
• Last Actual: 2.8% (Advance estimate, Q4)

What to Look For

• A slight downward revision to fourth quarter GDP, but with a better growth configuration

Implications

Real GDP growth for the fourth quarter will likely be revised down fractionally. The mix of growth should become more favorable, though, with less coming from inventories and more coming from final sales. In particular, business fixed investment should be revised up. First-quarter GDP growth continues to track at just above 2%.

Thursday, March 1 – Personal Income, Consumption, and Prices (Jan.)

Personal Consumption, Nominal

• IHS Global Insight: 0.4%
• Consensus: 0.4%
• Last Actual: 0.0% (Dec.)

Personal Consumption, Real

• IHS Global Insight: 0.2%
• Last Actual: -0.1% (Dec.)

Core PCE Price Index

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

Personal Income

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

What to Look For

• Pickup in incomes and spending thanks to improved jobs

Implications

In addition to job gains, there were two other sources of income growth in January. First, the National Defense Authorization Act resulted in a 1.6% pay increase for defense service members starting on January 1. This will increase government wage and salary disbursements for the first time in four months. Second, Social Security re-indexing kicked in—there has been no cost of living allowance increase for Social Security recipients since 2009. Consumer spending likely grew after a flat December, as better job prospects and unseasonably warmer weather got people into auto dealerships and shopping malls, despite rising gasoline prices. Core PCE inflation should clock a 0.2% pace, with the year-on-year rate holding at 1.8%.

Thursday, March 1 – ISM Manufacturing Index (Feb.)

• IHS Global Insight: 55.0
• Consensus: 54.5
• Last Actual: 54.1 (Jan.)

What to Look For

• Small increase centered on stronger shipments and orders

Implications

Current measurements for shipments and orders were solid in regional manufacturing readings this month, and should carry over to the national ISM score. Export orders should be watched for signs of drag coming from Europe, and supplier deliveries watched for problems in the supply chain during this early-2012 manufacturing boomlet.

Thursday, March 1 – Construction Spending (Jan.)

Construction Put in Place

• IHS Global Insight: 1.3%
• Consensus: 1.0%
• Last Actual: 1.5% (Dec.)

Construction Excl. Residential Improvements

• IHS Global Insight: 1.5%
• Last Actual: 1.8% (Dec.)

What to Look For

• A weather-related boost

Implications

January’s mild weather is the main driver behind strong construction numbers.

Thursday, March 1 – Motor Vehicle Sales (Feb.)

• IHS Global Insight: 13.8 Million
• Consensus: 14.0 Million
• Last Actual: 14.1 Million (Jan.)

What to Look For

• Slower sales pace than in January, but solid nonetheless

Implications

Healthy light-vehicle sales are expected to have continued into February, with little impact (so far) from higher gas prices. Rising inventory levels and marketing programs should remain incentives for reemerging consumers.

by Nigel Gault and Paul Edelstein

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