Key US Data Releases and Events

Just when markets thought they had properly sized up the risks to the global economy, China delivers a sucker punch that knocks equity prices down for the week. The HSBC flash purchasing managers' index (PMI) dropped to a four-month low in March, casting a shadow over the burgeoning recovery in China. The fall, if confirmed by the official PMI on April 1, will have ended three months of continuous improvement in manufacturing activity. However, with the HSBC survey's heavy focus on smaller businesses, the latest number by no means implies that the Chinese economy is reverting back to the fast downslide seen at the end of 2011. Nonetheless, it does show that the current recovery is still quite fragile and could prompt the government to ease more aggressively. We continue to believe that a “hard landing” is unlikely for China’s economic growth and still expect growth to exceed the Chinese government’s downwardly revised estimate.

Data this past week (March 19–23) focused primarily on the housing market, and the results were mixed. Housing starts edged down in February, but permits for future construction increased. But existing and new home sales slid last month, contrary to expectations of small increases. Inventories of existing homes on the market increased thanks to rising foreclosures, while inventories of unsold new homes were flat. The groundwork for a housing recovery is being laid, particularly within the jobs markets, but these numbers remind us that the recovery will be uneven.

Data this coming week (March 26–30) covers a lot of ground. Case-Shiller home prices for January are expected to fall, widening year-on-year declines to 4.3%. Both the Conference Board consumer confidence and Reuters/University of Michigan consumer sentiment indexes are seen rising in March despite higher gasoline prices. Durable goods orders likely rebounded in February from a disastrous January. Fourth-quarter 2011 GDP growth should be revised up slightly to 3.1%, as higher estimates for inventories, housing, and consumer medical services spending outweigh a decline in trade. The February personal income and consumption report is expected to show robust (inflation-adjusted) spending on top of weak income growth and moderate core inflation.

Tuesday, March 27 – S&P/Case-Shiller Home Price Index (Jan.)

• IHS Global Insight: -4.3% y/y
• Consensus: -3.8% y/y
• Last Actual: -4.0% y/y (Dec.)

What to Look For

• The drop in home prices continues

Implications

The Case-Shiller home prices continue to slip as a result of distressed sales. Our projection is for a 0.5% monthly drop in January, the same as in December. This translates into a 4.3% year-on-year decline, steeper than the 4.0% drop in December.

Tuesday, March 27 – Conference Board Consumer Confidence (Mar.)

• IHS Global Insight: 73.3
• Consensus: 70.0
• Last Actual: 70.8 (Feb.)

What to Look For

• More confidence thanks to improved jobs market prospects

Implications

The Conference Board's Consumer Confidence Index likely gained 2.5 points in March. Better job prospects and a stronger stock market far outweigh rising gasoline price increases in this survey.

Wednesday, March 28 – Durable Goods Orders (Feb.)

• IHS Global Insight: 4.2%
• Consensus: 2.9%
• Last Actual: -3.7% (Jan.)

What to Look For

• A rebound from a disastrous January, thanks in part to better aircraft and machinery

Implications

February should see a partial reversal of January’s sharp declines in machinery and aircraft orders, as well as a bounce in defense orders, after several anemic months. Total durable goods orders should climb 4.2%, with nondefense capital goods orders (excluding aircraft) up about 3.5%—machinery should represent about 80% of the core capital goods gain as orders return to more normal levels. Meanwhile, Boeing had a great month, with an order for 200 of the next-generation 737-MAX aircraft from Lion Air of Malaysia.

Thursday, March 29 – Real Gross Domestic Product (Third Estimate, Q4)

• IHS Global Insight: 3.1%
• Consensus: 3.0%
• Last Actual: 3.0% (Second estimate, Q4)

What to Look For

• Better inventories, construction, and health care spending, but weaker trade

Implications

Fourth-quarter real GDP growth is expected to be revised up to 3.1%, from 3.0%. Increased estimates for inventory accumulation, construction spending, and consumer spending on goods and medical services should outweigh a downgrade to net exports. First-quarter real GDP growth is on track for around 2%, without the huge contribution from inventories that added almost 2 percentage points to fourth-quarter growth. This third estimate of fourth-quarter growth will include the first estimates of national income account corporate profits for that quarter. The figures will likely show slower profits growth, with weaker productivity growth, rising commodity costs, slower overseas growth, and a stronger dollar all acting as headwinds. It is even possible that we will see the first quarter-on-quarter decline in profits from current production since the recession.

Friday, March 30 – Personal Income, Consumption, and Prices (Feb.)

Personal Consumption, Nominal

• IHS Global Insight: 0.7%
• Consensus: 0.6%
• Last Actual: 0.2% (Jan.)

Personal Consumption, Real

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

Core PCE Price Index

• IHS Global Insight: 0.1%
• Consensus: 0.1%
• Last Actual: 0.2% (Jan.)

Personal Income

• IHS Global Insight: 0.3%
• Consensus: 0.4%
• Last Actual: 0.3% (Jan.)

What to Look For

• Robust spending in the face of rising gas prices; subdued core inflation

Implications

Despite higher gas prices, real consumption growth should be more robust in February than in January. But personal income growth will likely lag spending growth, suggesting a decline in the saving rate. Higher energy prices will show up in headline PCE inflation, but core inflation is expected to be a subdued 0.1%, and fall to 1.8% in year-on-year terms.

Friday, March 30 – Reuters/University of Michigan Consumer Sentiment Index (Final Mar.)

• IHS Global Insight: 75.4
• Consensus: 74.8
• Last Actual: 74.3 (Preliminary Mar.)

What to Look For

• Some recovery from an early-month decline

Implications

Consumer sentiment should inch up from an early-month decline thanks to improved labor market conditions. But the gain will be smaller than in the Conference Board measure, which is less sensitive to gas prices.

by Nigel Gault and Paul Edelstein