Key US Data Releases and Events

Starting in 2012, the US economy may have to fend for itself as fiscal and monetary policymakers move away from stimulus. First, while the Federal Reserve is not prepared to tighten monetary policy any time soon, most Fed members appear less willing to support another round of quantitative easing, given an improved growth outlook and higher risks to inflation. The latest round of easing—Operation Twist—expires in June, and no further measures appear in the pipeline. If the economy continues on its subpar growth trajectory, what you see is what you get from monetary policy going forward. Meanwhile, first-quarter GDP growth fell short of expectations largely due to a substantial cut in federal defense spending. State and local government spending also fell. Together, government spending cuts knocked 60 basis points off of the GDP growth rate. While defense spending will probably correct upwards in the second quarter, the first quarter’s results were not an aberration. Government cutbacks have subtracted from GDP growth for six consecutive quarters. IHS Global Insight believes that we are entering an extended period of austerity to deal with our fiscal imbalances, and that federal government spending (at least outside of transfer payments) will decline this year and as far as the eye can see. To be sure, the degree of austerity will depend on the outcome of the November elections, but even an Obama win would mean government cutbacks. A more severe recession in Europe, another sharp spike in oil prices, or popular pushback against austerity similar to current events in Europe could still cause a U-turn among policymakers. But barring these outcomes, the US private sector and markets will be increasingly on their own.

In data this past week (April 23–27), real GDP growth for the first quarter was 2.2%, well short of estimates thanks to downside surprises in business fixed investment and government defense spending. Various crosscurrents make it difficult to judge the second-quarter outlook, but overall we expect a similar outcome, with growth around 2% again. The recovery looks well-founded, but uninspiring. In housing news, new home sales fell sharply in March, but the previous three months were revised upwards. Pending sales of existing homes increased in March. Typically, this would signal an increase in closings over the coming months, but the link has become less reliable lately. Home prices fell again in February, although the year-on-year declines have been narrowing a bit in the Case-Shiller index. Orders for durable goods fell in March, as civilian aircraft orders were cut nearly in half and upward revisions to February core capital goods made the latest numbers appear a bit weaker. Still, manufacturing will likely taper off from recent double-digit growth later this year as global economic growth slows. Evidence on consumer attitudes were mixed in April. The Conference Board’s Consumer Confidence Index slipped, but the Reuters/University of Michigan’s Index of Consumer Sentiment held steady in a late-month update.

In nondata news, the FOMC meeting showed members becoming more optimistic about growth prospects and a bit more concerned about inflation. No changes to policy were announced or hinted at, but it appears that support for another round of quantitative easing is diminishing. It also appears that fewer Fed members now support keeping the federal funds rate at the zero bound beyond 2014, although support for an earlier rate hike did not expand either. Bernanke also threw cold water on expectations that he might raise the Fed’s inflation target above 2% to stimulate economic growth, calling such a move “unwise” even though he advocated it for Japan a decade ago.

The data this coming week (April 30–May 4) culminate with the always critical employment report for April. Layoffs increased this month, and IHS expects the economy created 165,000 jobs—better than March, but below the 200,000-plus clip that was seen earlier in the year. This will not be enough to pull down the unemployment rate, which is expected to float back up to 8.3%. Otherwise, consumer spending likely increased at a much slower pace in March than in February, while core inflation picked up. Vehicle sales in April were probably similar to March, at around 14.2 million. The ISM manufacturing and nonmanufacturing indexes are expected to have fallen a bit in April, but to have stayed well within expansion territory. Labor productivity in the first quarter was seen slipping, as businesses used more labor to boost output. But hourly compensation growth was likely subdued, meaning only a modest increase in unit labor costs.

Monday, April 30 – Personal Income, Consumption, and Inflation (Mar.)

Personal Consumption, Nominal

• IHS Global Insight: 0.2%
• Consensus: 0.4%
• Last Actual: 0.8% (Feb.)

Personal Consumption, Real

• IHS Global Insight: 0.0%
• Last Actual: 0.5% (Feb.)

Personal Income

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

Core PCE Inflation

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

What to Look For

• A bump in personal income and positive, but slower, spending

Implications

For the third month in a row, wages and salaries will keep personal income growth at a 0.2% rate. March income growth will match spending growth, suggesting a flat saving rate. Real spending will be unchanged. Core inflation is expected to tick up to 0.2%, and rise to 2.0% in year-over-year terms.

Tuesday, May 1 – Construction Spending (Mar.)

Construction Put in Place

• IHS Global Insight: -0.8%
• Consensus: 0.4%
• Last Actual: -1.1% (Feb.)

Construction Excl. Residential Improvements

• IHS Global Insight: -0.9%
• Last Actual: -1.5% (Feb.)

What to Look For

• A decline in construction spending

Implications

Construction spending has benefited from mild weather recently; however, we are projecting a 0.8% decline in construction spending in March. The decline is mostly due to lower spending on public and nonresidential construction.

Tuesday, May 1 – ISM Manufacturing Index (Apr.)

• IHS Global Insight: 52.9
• Consensus: 53.0
• Last Actual: 53.4 (Mar.)

What to Look For

• A rebound in supplier deliveries

Implications

The ISM index for manufacturing should cool from 53.4 to 52.9 in April. Production, orders, and employment scores have all fared well during the late-2011/early-2012 growth spurt in manufacturing, but final demand is not growing strong enough to keep the ISM score as far from 50 as it has been since last fall.

Tuesday, May 1 – Motor Vehicle Sales (Apr.)

• IHS Global Insight: 14.2 Mil.
• Consensus: 14.4 Mil.
• Last Actual: 14.3 Mil. (Mar.)

What to Look For

• Fewer light-vehicle sales in March, but still a robust number

Implications

In line with the January and March results, April’s projected annual sales rate of 14.2-million units reflects the positive light-vehicle sales levels that the market has realized so far in 2012. Passenger car sales should also see continued strength. The recent moderation in the rise of gasoline prices creates opportunity for automakers to push the ample inventory of light trucks in the upcoming months.

Thursday, May 3 – Productivity (Preliminary Q1)

Nonfarm Business Productivity

• IHS Global Insight: -0.4%
• Consensus: -0.5%
• Last Actual: 0.9% (Q4)

Unit Labor Costs

• IHS Global Insight: 1.9%
• Consensus: 2.7%
• Last Actual: 2.8% (Q4)

What to Look For

• A decline in productivity as labor use jumps

Implications

We project that labor productivity will be down 0.4%, on a 2.7% increase in output offset by a 3.1% gain in hours. Unit labor costs will be up 1.9%, with a 4.6% jump in compensation offsetting the 2.7% increase in output.

Thursday, May 3 – ISM Non-Manufacturing Index (Apr.)

• IHS Global Insight: 55.0
• Consensus: 55.3
• Last Actual: 56.0 (Mar.)

What to Look For

• A small deceleration in non-manufacturing sector growth

Implications

Several economic indicators suggest that the recovery hit a soft patch in March and April. The ISM Non-Manufacturing Index is expected to forfeit one point that month. Non-manufacturing industries collectively grew in April, but at a somewhat slower pace.

Friday, May 4– Employment Report (Apr.)

Nonfarm Payrolls

• IHS Global Insight: 165,000
• Consensus: 165,000
• Last Actual: 120,000 (Mar.)

Unemployment Rate

• IHS Global Insight: 8.3%
• Consensus: 8.2%
• Last Actual: 8.2% (Mar.)

Average Hourly Earnings

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

What to Look For

• Continued payroll growth, but not enough to lower the unemployment rate

Implications

We expect payroll employment to increase by 165,000 in April. Recent increases in initial unemployment insurance claims suggest that the improvement in the labor market has slowed from the 200,000-plus job gains per month that we saw in December through January—but we suspect that the disappointing 120,000 March result exaggerates how much it has slowed. The unemployment rate will likely edge up to 8.3%, from 8.2%.

by Nigel Gault and Paul Edelstein