Key U.S. Data Releases and Events

We are not expecting any bombshells this week. We are expecting, however, another string of dismal economic reports. All indicators point to another plunge in existing home sales in February. New home sales will stage a modest rebound, but from an all-time low in January. GDP will be revised to show an even larger plunge in fourth-quarter real GDP. Nominal consumer spending for February will show a small drop. Personal income will also be down because of February's staggering job losses. Domestic and foreign demand for capital goods is plunging, and we are expecting another big drop in durable goods orders to reflect this. Finally, we expect consumer sentiment to inch up, but remain at recessionary levels.

KEY U.S. DATA RELEASES THIS WEEK

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

• IHS Global Insight: 4.26 Mil.
• Consensus: 4.45 Mil.
• Last Actual: 4.49 Mil. (Jan.)

What to Look For

Two competing forces are driving existing home sales. Distressed sales (foreclosures and short sales) in three western states—Arizona, California, and Nevada—are driving sales up. Driving housing sales down is weak demand across most states. In January, weak demand won out, as both existing home sales and pending home sales sank. We expect weak demand to win out again in February, since the Pending Home Sales Index plunged 7.7% in January, to an all-time low, and applications to purchase mortgages in February, according to the Mortgage Bankers Association, were down 18%.

Implications

The 30-year fixed mortgage rate that Freddie Mac tabulates has dropped to 4.98%, the second lowest weekly reading ever (data start in April 1971). The rate is likely to drop further this week because of the Fed's announcement that it would buy up over $1 trillion more in Treasury and agency debt. Lower mortgage rates will stimulate demand, but will not be enough to keep sales from sliding further over the next few months. The economy is shedding jobs at a frightening pace. Until this pace slows down, home sales will continue to slide.

Wednesday, March 25 – Durable Goods Orders (Feb.)

• IHS Global Insight: -3.6%
• Consensus: -2.2%
• Last Actual: -4.5% (Jan.)

What to Look For

Durable goods orders should fall another 3.6%, with weak demand infecting capital goods and consumer goods, and aircraft cancellations exceeding new orders. Vehicle orders will be weak. Investment goods will be especially weak.

Implications

Demand for capital goods is plunging. Domestic demand will bottom out late this year, but foreign demand will not turn around until late 2010.

Wednesday, March 25 – New Home Sales (Feb.)

• IHS Global Insight: 0.331 Mil.
• Consensus: 0.300 Mil.
• Last Actual: 0.309 Mil. (Jan.)

What to Look For

Single-family housing permits rebounded smartly in February. A rebound in new home sales might have triggered this rebound, so we are projecting a modest sales increase to 331,000 units.

Implications

New home sales will hit bottom later this year, but will remain weak through next year.

Thursday, March 26 – Real Gross Domestic Product, Final (Q4)

• IHS Global Insight: -6.7%
• Consensus: -6.6%
• Last Actual: -6.2% (Preliminary, Q4)

What to Look For

Fourth-quarter real GDP growth is expected to be revised down to -6.7% from -6.2%. Lower inventories (good news) and lower nonresidential construction (bad news) will drive the revision.

Implications

The fourth quarter is now almost ancient history, but unfortunately the first quarter looks just as bad.

Friday, March 27 – Personal Income, Consumption and Prices (Feb.)

Personal Consumption, Nominal

• IHS Global Insight: -0.1%
• Consensus: 0.2%
• Last Actual: 0.6% (Jan.)

Personal Consumption, Real

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

Core PCE Price Index

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

Personal Income

• IHS Global Insight: -0.3%
• Consensus: -0.1%
• Last Actual: 0.4% (Jan.)

What to Look For

Core retail sales, the component of retail sales that feeds most consumer spending goods categories in the national income accounts, increased 0.8% in February. However, auto sales were down, and spending on electricity and gas was probably down because of warmer than normal weather. Added up, we project that consumer spending edged down 0.1% in February. Adjusted for inflation, spending dropped 0.4%.

After rounding up, core PCE inflation should come in at 0.2%, about the same as February's core CPI reading. Year-on-year, it will increase 1.7%.

Implications

Consumer spending is stabilizing, after plunging 3.8% and 4.3%, respectively, in the third and fourth quarters of 2008. Inflation will remain subdued because of slack demand in the United States and abroad.

Friday, March 27 – Michigan Consumer Sentiment Index, final (Mar.)

• IHS Global Insight: 57.5
• Consensus: 56.6
• Last Actual: 56.6 (preliminary, Mar.)

What to Look For

The Reuters/University of Michigan's Consumer Sentiment Index is expected to average 57.5 in March, up slightly from 56.3 in February and 56.6 in early March. A midmonth stock market rally and an uptick in the ABC/Washington Post Consumer Comfort Index suggest that consumers are a bit more optimistic about the economy. Despite some improvement, the sentiment index remains in recession territory, held down by mounting job losses.

Implications

After stabilizing in early 2009, we expect that real consumer spending will retreat modestly through the spring and only then begin a gradual recovery this summer.