Key U.S. Data Releases and Events

The silver lining is that bond yields plummeted, and that is expected to propel mortgage rates back down below the key 5% threshold, thereby providing a boost to home sales in the weeks ahead.

Next week, the economic indicators and reports are expected to have a strong positive spin and hopefully dissipate some of the negative aftertaste from the previous week.

While December existing home sales will recoil from a spike in November, new home sales will float considerably higher, durable goods orders will get a strong lift from aircraft orders, and real GDP will gallop ahead in the fourth quarter of 2009 by 5.7%. Nonfarm productivity is therefore expected to see another incredible quarter, growing by close to 7%. In addition, the December Conference Board Index of consumer confidence is expected to move up, and the Michigan confidence index is also expected to drift a little higher. Finally, the FOMC is expected to issue a press release on Wednesday that will signal no change to its current very accommodative stance on monetary policy.

KEY U.S. DATA RELEASES THIS WEEK

Monday, January 25 – Existing Home Sales (Dec.)

• IHS Global Insight: 5.55 Mil.
• Consensus: 5.90 Mil.
• Last Actual: 6.54 Mil. (Nov.)

What to Look For

Existing home sales are expected to decline by 15%.

Implications

The Pending Home Sales Index (PHSI) fell 16% in November, payback for the original tax credit for first-time homebuyers that expired on November 30. Based on this reading, we project that existing home sales dropped 15% during December. The key question is whether the second tax credit, which extended the deadline and applies to many current homeowners, will jump-start sales. So far, the second credit appears to be having a minimal effect. Mortgage applications to purchase homes (the 4-week moving average) are currently near a 13-year low, but mortgage rates are moving back down again, so that may provide a new fillip to home sales in the upcoming month.

Tuesday, January 26 – Conference Board Consumer Confidence (Jan.)

• IHS Global Insight: 55.0
• Consensus: 53.5
• Last Actual: 52.9 (Dec.)

What to Look For

The index is expected to increase from 52.9 in December to 55.0 in January in response to favorable news on the economy.

Implications

With the start of a new year, confidence typically improves. Strong growth in real GDP in the fourth quarter suggests that an upturn in employment is coming soon. Increased optimism about employment and income growth in the year ahead should give confidence a lift.

Wednesday, January 27 – New Home Sales (Dec.)

• IHS Global Insight: 0.399 Mil.
• Consensus: 0.370 Mil.
• Last Actual: 0.355 Mil. (Nov.)

What to Look For

• New home sales to jump by 8.3%.

Implications

The update on new home sales will be more positive than that for existing homes. New home sales took their lumps during November, the payback for the previous boost from the tax credit for new homeowners—and possibly also because of measurement error. For December, we are expecting a solid rebound based on the 8.3% increase in single-family housing permits, which are a good predictor of new home sales.

Wednesday, January 27 – FOMC Rate Decision

• IHS Global Insight: 0.00–0.25%
• Consensus: 0.00–0.25%
• Last Actual: 0.00–0.25%

What to Look For

• The FOMC is expected to vote to keep the federal funds target unchanged at 0.0–0.25%, and maintain the same targets and deadlines for the phase-out of quantitative easing in the first half of 2010.

Implications

The FOMC will mention that the economic situation is showing further signs of improvement, while underlying inflation pressures are subdued. With continued massive excess capacity and dormant inflation pressures, the FOMC will stick to its current accommodative stance on policy for an extended period.

Thursday, January 28 – Durable Goods Orders (Dec.)

• IHS Global Insight: 3.0%
• Consensus: 2.0%
• Last Actual: 0.2% (Nov.)

What to Look For

• Durable goods orders should climb 3.0% in December, with aircraft orders providing most of the lift.

Implications

Core capital goods orders surged 3.6% in November and may suffer a minor relapse if their recent on-again/off-again monthly cycle repeats. The motor vehicle sector was little changed in December and the defense sector was "too average" in November to expect much lift or drag this month. Durable goods are still in solid recovery mode, but December's surge will reflect volatile aircraft orders more than anything else.

Friday, January 29 – Real Gross Domestic Product, Advance Estimate (Q4)

• IHS Global Insight: 5.7%
• Consensus: 4.6%
• Last Actual: 2.2% (Third estimate, Q3)

What to Look For

• GDP is expected to surge by 5.7% in the fourth quarter, up from 2.2% in the third, with the headline increase dominated by the effects of much slower inventory liquidation.

Implications

Inventories will still be falling, but much more slowly than in the third quarter, and that means that they will be adding to GDP growth, to the tune of more than 3 percentage points. Final sales growth, a better indicator of where the future GDP trend is growing, should rise 2.3%, compared with the third quarter's 1.5%—a less dramatic acceleration, but an improvement nonetheless. There should be even more rapid growth in exports than in the third quarter (outpacing imports), and faster growth in business equipment spending (especially high-tech). Consumer spending growth is expected to slow to 2.0% from 2.8%, but that is due to the cash-for-clunkers effect. Non-auto spending should grow faster than in the third quarter. Residential investment should improve again, but less sharply than in the third quarter, while nonresidential structures (apart from mining and petroleum) will show another big decline. Government spending will probably decline, largely on lower defense spending after big defense increases in the two previous quarters.

Friday, January 29 – Michigan Consumer Sentiment Index, Final (Jan.)

• IHS Global Insight: 73.3
• Consensus: 73.0
• Last Actual: 72.8 (preliminary, Jan.)

What to Look For

• The University of Michigan index of consumer sentiment is projected to average 73.3 in January, up slightly from the preliminary reading of 72.8 and the December average of 72.5.

Implications

Improving assessments of current conditions are driving the index higher. With labor market conditions improving, households are more confident about employment and income prospects. Upper income households, benefiting from the recovery in stock prices, are expected to rate buying conditions more favorably.