Key US Data Releases and Events

The Federal Reserve was front and center last week. From the latest Beige Book report, we learned that committee members are receiving upbeat news from their regional business contacts. The report—covering mid-January through February—included anecdotal information that the economic recovery was firmly on track during the first months of 2012. The most significant addition to the report was that for the first time since the end of the recession, housing was said to have improved in most districts. Otherwise, consumer demand was generally healthy, although mild weather hurt sales of winter clothing and other seasonal items. Nevertheless, most at the Fed believe that the pace of economic growth should be modest this year, and unemployment high. What does this mean for policy? Currently, there are no plans to either scale back the forward rate guidance (and raise rates early) or initiate QE III at this time. During his latest testimony to Congress, Fed chairman Ben Bernanke remained somewhat skeptical that the economy has entered a stronger growth phase and pointed out important caveats to recent improvements in the data. In doing so, Bernanke tried to establish that recent declines in the unemployment rate are insufficient to warrant rethinking of the Fed’s policy stance at this time.

This past week (February 27–March 2) was a heavy one with regard to data, and taken together, the news was generally upbeat, although there were a few negatives. Fourth-quarter real GDP growth was unexpectedly revised upward, from 2.8% to 3.0%. Other than stronger-than-first-estimated final sales, the biggest news in the report was an upward revision to private wage and salary growth during the final two quarters of 2011. The revised figures paint a healthier picture of consumer finances and lend more reason to believe that consumers can withstand the headwinds brought on by rising gasoline prices. Personal income rose 0.3% in January, while spending rose 0.2%; upward revisions to December show the saving rate higher than initially thought. Consumer confidence surged in February after January’s dip, and is at the highest level in a year. And despite higher gasoline prices, motor vehicle sales breezed past expectations in February, notching 15.0-million units (SAAR). Not all of the data was rosy, however. Durable goods orders plunged 4.0% in January, although plummeting aircraft orders overstated the decline. Home prices fell again in the S&P/Case-Shiller index for December; the 20-city composite index was down 4.0% year on year—to a decade low. The ISM manufacturing index eased to 52.4 in February on a drop in vendor performance, which measures supplier backlogs. Construction spending fell in January, but upward revisions to November and December should have positive growth implications.

February’s employment report will be the highlight of the upcoming week (March 5–9), and another strong set of payroll figures is expected: 220,000 jobs added, with a token decrease in the unemployment rate (to 8.2%). This would be consistent with the data on initial unemployment insurance claims, which have declined steadily, and recent evidence of labor market optimism from consumer surveys. Thanks to higher exports and little net change in imports, a smaller trade deficit in January should have positive implications for first-quarter growth. The ISM non-manufacturing index is expected to fall slightly, but remain comfortably above the expansionary threshold of 50. Finally, upward revisions to output and compensation should raise nonfarm productivity and labor cost growth readings.

Monday, March 5 – ISM Non-Manufacturing Index (Feb.)

• IHS Global Insight: 56.3
• Consensus: 56.1
• Last Actual: 56.8 (Jan.)

What to Look For

• A slight deceleration in nonmanufacturing growth

Implications

The ISM non-manufacturing index is expected to have retreated slightly this past month, after a big improvement in January. As nonmanufacturing industries—services, energy, and mining—make up the majority of the US economy, this result would tend to support a moderate pace of real GDP growth leading into 2012.

Wednesday, March 7 – Productivity (Final Q4)

Nonfarm Business Productivity

• IHS Global Insight: 1.4%
• Consensus: 0.8%
• Last Actual: 0.7% (Preliminary Q4)

Unit Labor Costs

• IHS Global Insight: 2.3%
• Consensus: 1.2%
• Last Actual: 1.2% (Preliminary Q4)

What to Look For

• Upward revisions to productivity and labor costs

Implications

Fourth-quarter productivity growth should be revised up on a small upward revision to output and a downward revision to hours of about 0.6–0.7%. Growth in unit labor costs should be revised up more than a percentage point in the fourth quarter, on an upward revision to compensation. There will be an even bigger upward revision to unit labor cost growth for the third quarter, since the upward revision to compensation growth for that quarter was huge. Faster growth in compensation is good news for consumer incomes, and is consistent with the recent picture of slower corporate earnings growth.

Friday, March 9 – Employment Report (Feb.)

Nonfarm Payrolls

• IHS Global Insight: 220,000
• Consensus: 210,000
• Last Actual: 243,000 (Jan.)

Unemployment Rate

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

Average Hourly Earnings

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

What to Look For

• 220,000 jobs added in February
• A token decrease in the unemployment rate, to 8.2%

Implications

We expect another strong employment report in February, consistent with declining initial unemployment insurance claims and greater optimism about the labor market seen in recent consumer surveys. We see an overall increase in jobs of 220,000, not quite as strong as January's 243,000 because we do not expect as much help from mild winter weather this month. The solid job gains should lead to another downtick in the unemployment rate, from 8.3% to 8.2%.

Friday, March 9 – Trade Balance (Jan.)

• IHS Global Insight: -$47.4 billion
• Consensus: -$49.0 billion
• Last Actual: -$48.8 billion (Dec.)

What to Look For

• A narrowing of the trade deficit in January on stronger export growth

Implications

The foreign trade deficit should narrow to $47.4 billion in January, after widening in November and December. Exports should grow while imports move sideways. A big increase in aircraft exports will lead overall exports higher. On the import front, a higher oil import bill (due to a combination of higher volumes and prices) should offset weaker nonpetroleum imports. For the first quarter of 2012, trade is likely to provide a small boost to growth as both exports and imports grow at a moderate pace—but exports outpace imports.

by Nigel Gault and Paul Edelstein