Key U.S. Data Releases and Events

Adding to this foment, the monster U.S. healthcare bill is being slowly rolled up the mountain for a potential vote on Sunday, and markets became skittish about how that will play out, given the unknowns about the potential downstream issues with the Senate and the reconciliation process. Bottom line, this is an expensive entitlement program that will necessitate significant tax increases, on top of those required to close the deficit gap to manageable proportions. And when you throw in the required fix to Medicare reimbursement rates, the deficit actually increases over the 10-year horizon.

Other economic reports next week will be mixed. New and existing home sales likely struggled in February, while durable goods orders likely rose. Consumer sentiment should show a modest bounce-back in the second half of March.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, March 23 – Existing Home Sales (Feb.)

• IHS Global Insight: 4.88 Mil.
• Consensus: 5.00 Mil.
• Last Actual: 5.05 Mil. (Jan.)

What to Look For

• We expect existing home sales to fall 3.4% in February.

Implications

The Pending Home Sales Index fell 7.6% during January. The drop is further payback for the initial first-time homebuyers’ tax credit that expired on November 30. Based on this reading, we project another drop in existing home sales. In addition, the severe weather distorted housing activity considerably in February, and existing home sales will not be immune from this.

Wednesday, March 24 – Durable Goods Orders (Feb.)

• IHS Global Insight: 2.0%
• Consensus: 0.7%
• Last Actual: 2.6% (Jan.)

What to Look For

• Durable goods orders should climb 2.0% in February, on the strength of a rebound in aircraft orders.

Implications

Boeing had a good month, but many equipment makers recorded a bad January and are due for a rebound, so aircraft will not be the only positive contributor. Core capital goods should enjoy another good month, after a weak January caused by retrenchment in certain categories of machinery industries. Defense orders should decline, after spiking higher in January.

Wednesday, March 24 – New Home Sales (Feb.)

• IHS Global Insight: 0.321 Mil.
• Consensus: 0.315 Mil.
• Last Actual: 0.309 Mil. (Jan.)

What to Look For

• We expect a modest bounce-back of 1.9% from the sharp drop in January.

Implications

New home sales tumbled to a record-low 309,000 (seasonally adjusted annual rate) in January. The median time for sale rose a one-tenth, to an all-time high of 14.2 months (data start in 1963); during normal times, homes sell within five months. Sales are weak because builders, who must cover their costs, have trouble competing in today's saturated housing market. Market conditions will improve later this year, though, as the economy adds jobs. But we are not expecting much improvement in February's numbers.

Friday, March 26 – Real Gross Domestic Product (Third estimate, Q4)

• IHS Global Insight: 5.6%
• Consensus: 5.9%
• Last Actual: 5.9% (Second estimate, Q4)

What to Look For

• We expect the second revision of fourth-quarter GDP to take growth down to 5.6%, from 5.9%.

Implications

Construction spending is likely to be revised down, especially in the nonresidential sector, which was already showing a steep decline. In addition, we expect that inventories will be revised down slightly. These would be marginal revisions of little consequence, since fourth-quarter GDP is ancient history at this point.

Friday, March 26 – Michigan Consumer Sentiment Index (Final Mar.)

• IHS Global Insight: 73.0
• Consensus: 73.0
• Last Actual: 72.5 (Preliminary Mar.)

What to Look For

• The Reuters/University of Michigan’s Index of Consumer Sentiment is expected to average 73.0 in March, midway between its February level of 73.6 and its preliminary March reading of 72.5.

Implications

Sentiment appears to be in a holding pattern, awaiting better news on employment. Stock market gains are fueling a gradual recovery in household wealth, but it will take an upturn in employment to generate sustained growth in real incomes. Retail sales in early 2010 indicate that consumers are cautiously increasing their spending, even as consumer sentiment treads water—thus, pent-up demand could be building.