Key U.S. Data Releases and Events

At the end of the short week, however, November durable goods orders will be held down by an air pocket in aircraft orders, a situation that is likely to be temporary, in view of the recent successful test flight of the Boeing 787. All signals point to a strong fourth quarter for real GDP growth, in the vicinity of 4%.

OPEC is expected to meet next Tuesday, but we expect no change to the current marching orders in terms of restrained production quotas. Inventories are high and global demand is seeing only slight improvements, but prices are holding surprisingly well north of $70/barrel.

In other key developments, the U.S. Senate continues to “deliberate” over the Senate version of the complex healthcare reform bill, and it is highly uncertain whether a full Senate vote will be called before the Christmas recess. A successful vote will put healthcare reform on the fast-track for early 2010, but a deferral of the vote bill will lead to a substantial dissipation of momentum—in this case, we may not see a conference bill until February or later. The stakes are getting uncomfortably high on healthcare reform.

Congress also is under the gun to pass a key bill that will allow for the extended unemployment benefits program to continue during 2010, other safety net programs, and possibly additional infrastructure spending. Those stimulus spending elements may well be attached to the fiscal 2010 defense spending bill. Beyond that, Congress is looking at a package of a wider range of proposals for passage in early 2010, in line with Obama's recent speech on stimulating demand for employment.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, December 22 – Real Gross Domestic Product (Third estimate, Q3)

• IHS Global Insight: +2.5%
• Consensus: +2.8%
• Last Actual: +2.8% (Second estimate, Q3)

What to Look For

• We expect the third estimate of third-quarter GDP growth to be revised down from 2.8% to 2.5%.

Implications

Private nonresidential construction fell more than previously estimated, and inventories appear to have fallen faster as well. But the third-quarter figures are ancient history at this point, and what matters more now is that fourth-quarter growth is shaping up at around 4%, as the inventory cycle turns upwards.

Tuesday, December 22 – Existing Home Sales (Nov.)

• IHS Global Insight: 6.31 Mil.
• Consensus: 6.25 Mil.
• Last Actual: 6.10 Mil. (Oct.)

What to Look For

• Existing home sales to climb by about 1%.

Implications

Existing home sales surged in the preceding month of October, as first-time homebuyers rushed to take advantage of the up-to-$8,000 tax credit originally scheduled to expire on November 30. With October's Pending Home Sales Index up 3.7% (its ninth straight monthly increase), we are expecting a last burst of sales in November. Given that the Mortgage Bankers Association's Purchases Index fell to its lowest level since 1997 during November, sales are likely to plunge in December, despite the extension and expansion of the tax credit.

Wednesday, December 23 – Personal Income, Consumption, and Prices (Nov.)

Personal Consumption, Nominal

• IHS Global Insight: +0.5%
• Consensus: +0.7%
• Last Actual: +0.7% (Oct.)

Personal Consumption, Real

• IHS Global Insight: +0.2%
• Last Actual: +0.4% (Oct.)

Core PCE Price Index

• IHS Global Insight: 0.0%
• Consensus: +0.1%
• Last Actual: +0.2% (Oct.)

Personal Income

• IHS Global Insight: +0.4%
• Consensus: +0.5%
• Last Actual: +0.2% (Oct.)

What to Look For

• Personal income to rise by 0.4%
• Real consumer spending to advance by 0.2%.

Implications

The workweek increased by 0.6% and hourly earnings were up 0.1% in November, according to the latest employment report. These increases should translate into solid gains in private wages and salaries within the personal income accounts. Overall, we expect that personal income increased 0.4% in November. Retail sales were surprisingly strong in November, which will push consumer spending higher. Control retail sales, the retail sales that feed the consumer spending numbers in the National Income Accounts, were up 0.5%. Light-vehicle sales were also up. But services spending will probably be little changed, as warm weather reduced electricity and gas consumption. Overall, spending should be up 0.5%. Adjusted for inflation, spending should rise 0.2%. Finally, based on November's benign core CPI reading, the core PCE price index should be flat. Its year-on-year growth rate will still inch up to 1.5%, but stay well inside the Fed's comfort zone.

Wednesday, December 23 – Michigan Consumer Sentiment Index (Final Dec.)

• IHS Global Insight: 74.0
• Consensus: 73.8
• Last Actual: 73.4 (Preliminary, Dec.)

What to Look For

• The Reuters/University of Michigan’s Index of Consumer Sentiment is expected to average 74.0 in December, up from 67.4 in November and slightly ahead of its preliminary reading of 73.4.

Implications

As the national economic recovery continues and job losses diminish, consumers are becoming more optimistic about their finances and prospects for the year ahead. Price discounts by retailers throughout the holiday shopping season are contributing to favorable assessments of buying conditions.

Wednesday, December 23 – New Home Sales (Nov.)

• IHS Global Insight: 0.442 Mil.
• Consensus: 0.439 Mil.
• Last Actual: 0.430 Mil. (Oct.)

What to Look For

• Single-family home sales expected to move up by 2.8%.

Implications

New home sales tend to track housing starts and permits. Based on the latest single-family permits numbers, which were up, single-family sales should have increased to a 442,000 annual rate in November (up 2.8% from October). The key number in recent reports is inventories of new homes, which sank for the 30th straight month in October—to their lowest level since May 1971. The decline in inventories implies that builders, at some point soon, will need to ramp up housing starts, or they will lose sales.

Thursday, December 24 – Durable Goods Orders (Nov.)

• IHS Global Insight: 0.0%
• Consensus: +0.5%
• Last Actual: -0.6% (Oct.)

What to Look For

• Durable goods orders were probably little changed overall in November, as an improvement in most sectors should be offset by lower aircraft orders.

Implications

If industrial production is any indication, though, shipments should have been strong, as durables output climbed 1.0%. Aircraft held orders down, as a dreary month with only nine aircraft ordered from Boeing was a stark contrast with fourteen the month before. Machinery orders should be a plus if the recent yo-yo pattern continues, as last month was off by 8.5% and the prior month was up 8.5%. Computer orders should also be a plus as orders fell to their lowest level in the recession in October, and a bounce back is likely.