Reports and Indicators next week will add further definition to the picture of an economy still struggling to shake off recessionary forces.
Last week served as a "reality check" for the markets, as higher energy prices, weak retail sales, and further financial-sector write-offs suggested that the economy is far from being "out of the woods." Bond yields dropped sharply in the week ended Friday. On a positive note, the 50% increase in the volume of the Fed's fortnightly temporary auction facility (TAF) auction, to $75 billion, on May 6 have driven the treasury-eurodollar (TED) spread down about 38 basis points since the end of April, and three-month LIBOR rates dropped about 15 basis points, to 2.85%, over the three days ended on May 8.
Indicators next week will add further definition to the picture of an economy that is still struggling, as April retail sales and production are both expected to decline, while consumer sentiment slides further into recessionary territory. At the same time, we do not expect much pressure on April consumer prices, with top-level prices up a tame 0.1% and core prices up a moderate 0.2%.
KEY U.S. DATA RELEASES THIS WEEK
Tuesday, May 13 – Retail Sales (Apr.)
Total
Global Insight: -0.3%
Consensus: -0.2%
Last Actual: +0.2% (Mar.)
Less Autos
Global Insight: 0.0%
Consensus: +0.2%
Last Actual: +0.1% (Mar.)
What to Look For
· Overall retail sales to be down 0.3%.
· Excluding autos, April sales will be flat.
Implications
Retail sales fell an estimated 0.3% in April, pulled down by a drop at automotive dealerships. Seasonally adjusted sales of light vehicles dropped from 15.1 million units in March to 14.4 million in April (annual rates). Excluding autos, sales were flat last month. Aggressive promotions helped move items at apparel and general merchandise stores. But a decline in seasonally adjusted gasoline prices held back sales at service stations.
Wednesday, May 14 – Consumer Price Index (Apr.)
Total
Global Insight: +0.1%
Consensus: +0.3%
Last Actual: +0.3% (Mar.)
Core
Global Insight: +0.2%
Consensus: +0.2%
Last Actual: +0.2% (Mar.)
What to Look For
· Top-level index moved up only 0.1% last month.
· Core index likely rose 0.2%.
Implications
We expect that consumer prices edged 0.1% higher in April, as a favorable seasonal factor transforms sharply higher gasoline prices at the pump into a moderate seasonally adjusted decline. Excluding food and energy, "core" consumer prices likely rose 0.2% for the second straight month. Fed policymakers—anxious that surging energy costs will work themselves into core prices—will take some comfort with the result. More months of such stability will be required, however, before the Fed can lift the current "high alert" condition.
Thursday, May 15 – Industrial Production (Apr.)
Global Insight: -0.7%
Consensus: -0.3%
Last Actual: +0.3% (Mar.)
What to Look For
· Industrial production should drop about 0.7%.
· Capacity utilization is expected to be down to 79.8%.
Implications
Weather was neutral for utility output during April, but natural gas production and pipeline transportation will have been hampered by the outage of the Independence Hub for two-thirds of the month. The natural gas shortfall turns mining and utility output negative, complementing the bad news in manufacturing from dreadful motor vehicle output (down 8–9%), more sluggish growth in high-tech industries, and an expected weak month for core manufacturing. Exports are still a positive for core manufacturing, but not powerful enough to keep core goods output in the black for two successive months.
Friday, May 16 – Housing Starts and Building Permits (Apr.)
Starts
Global Insight: 0.932 Mil.
Consensus: 0.935 Mil.
Last Actual: 0.947 Mil. (Mar.)
Permits
Global Insight: 0.890 Mil.
Consensus: 0.910 Mil.
Last Actual: 0.928 Mil. (Mar.)
What to Look For
· Housing starts likely dropped 1.6% last month.
· Permits should be down 4.1%.
Implications
Part of March's drop in multi-family starts appeared to be statistical noise, so we are expecting a small rebound in this category. Single-family starts, though, should drop another 4%. The housing market is still in disequilibrium and housing output is unlikely to stabilize until the second half of 2009.
Friday, May 16 – Michigan Consumer Sentiment Index (Preliminary May)
Global Insight: 59.6
Consensus: 62.5
Last Actual: 62.6 (final Apr.)
What to Look For
· Preliminary index to decline by 3.0 points, to 59.6.
Implications
The Reuters/University of Michigan Index of Consumer Sentiment is expected to drop 3.0 points in early May, to 59.6—its lowest level since June 1980. Soaring gasoline prices are eroding household purchasing power, while declining home prices are reducing household wealth. With employment still declining, consumers are anxious about their current and future financial situations. Further downward pressure on consumer confidence, and upward pressure on gasoline prices, are expected to attenuate the impact of the fiscal-stimulus measures on consumer spending. While real consumption is expected to increase 2.9% in the third quarter, we see a stall in the final quarter of 2008 and the first quarter of 2009.
