Last week's strong rally in the stock markets, which was triggered primarily by positive earnings information from the banking industry, as well as indications of some forbearance from regulators on capital adequacy requirements during economic down-cycles—such as the current, severe one—will be a tough act to follow in the upcoming week.

Economic releases are not expected to provide much support for a sustained rally, however, as industrial production likely fell again in February, housing activity should remain at extremely depressed levels overall, and price reports are unlikely to contain any noteworthy surprises.

The FOMC meeting on March 17–18 will certainly attract considerable attention. The main issue of debate is the overall size and composition of its balance-sheet operations. Some members have argued rather forcefully that the FOMC should be focusing its wide range of quantitative programs on the purchase of Treasury notes, either as a complement or a substitute to the targeted credit programs that we have seen so far. This thorny issue is still on the table and may evoke another dissenting vote, similar to the previous FOMC meeting.

KEY U.S. DATA RELEASES THIS WEEK

Monday, March 16 – Industrial Production (Feb.)

• Global Insight: -0.8%
• Consensus: -1.3%
• Last Actual: -1.8% (Jan.)

What to Look For

• Production is expected to decline by 0.8%.
• Weather was a negative for utility production.

Implications

Industrial production should fall less steeply in February, with motor vehicle production shifting from a massive drag to a plus. Light-vehicle assemblies rose from a dire 3.7-million-unit annual rate in January to a still awful 4.5-million rate in February. Weather was a negative for electricity production, and the recession sent overall manufacturing hours-worked down by 2.0%. Those negatives will swamp the positive effect from auto output and send production down 0.8%; excluding autos, manufacturing will suffer yet another dismal loss.

Tuesday, March 17 – Housing Starts and Building Permits (Feb.)

Starts

• Global Insight: 0.479 Mil.
• Consensus: 0.450 Mil.
• Last Actual: 0.466 Mil. (Jan.)

Permits

• Global Insight: 0.499 Mil.
• Consensus: 0.500 Mil.
• Last Actual: 0.531 Mil. (Jan.)

What to Look For

• Housing starts to rebound slightly.
• Building permits, however, will decline.

Implications

Below-normal temperatures in the Northeast and Midwest held housing starts down in January. Starts in both regions likely bounced back enough in February to lift the national numbers above January's level. In March, however, the slide will resume. Housing permits, which are not influenced as much by weather as starts, are expected to tumble another 6%.

Tuesday, March 17 – Producer Price Index (Feb.)

Total

• Global Insight: +0.6%
• Consensus: +0.4%
• Last Actual: +0.8% (Jan.)

Core

• Global Insight: +0.1%
• Consensus: +0.1%
• Last Actual: +0.4% (Jan.)

What to Look For

• Top-level producer prices to rise by 0.6%.
• Core prices to increase only 0.1%.

Implications

The producer price index is expected to extend January's increase, rising 0.6%. The driving force once again is energy, expected to be up 3.8%. Excluding food and energy, core producer prices likely rose 0.1%, much more muted than January's 0.4% increase. Indeed, we do not expect a repeat of January's price hikes in autos, aircraft, and pharmaceuticals.

Wednesday, March 18 – Consumer Price Index (Feb.)

Total

• Global Insight: +0.3%
• Consensus: +0.3%
• Last Actual: +0.3% (Jan.)

Core

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

What to Look For

• Overall consumer prices to increase 0.3% in January.
• Gasoline prices to jump by 8.0%.
• Core prices to edge up only 0.1%.

Implications

Consumer prices are likely to increase 0.3%, as in January, led by a roughly 8.0% jump in gasoline prices. Excluding food and energy, core consumer prices should advance 0.1% as core commodities, under pressure from weak demand, are unlikely to repeat January's increase.

Wednesday, March 18 – FOMC Rate Decision

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

What to Look For

• Target range to remain unchanged, at 0.00–0.25%.

Implications

The FOMC is expected to keep the target range for the federal funds rate unchanged, at 0% to 0.25%. The FOMC will have to acknowledge that the short-term economic outlook has deteriorated, compounded by a severe global recession. Downside risks to the Fed's outlook remain high. In addition, we expect some references to the Fed's balance sheet programs, including some clues as to whether the FOMC is moving closer or further away from purchases of long-term Treasury bonds.

Thursday, March 19 – Conference Board Leading Indicator (Feb.)

• Global Insight: -0.6%
• Consensus: -0.6%
• Last Actual: +0.4% (Jan.)

What to Look For

• Leading indicator to fall by 0.6%.

Implications

The Conference Board's Index of Leading Economic Indicators is poised for a big fall, likely losing 0.6% in February. The likely decline comes from the rapid escalation of initial unemployment claims (which averaged over 640,000 during the month), steep drops in share prices, and weaker consumer expectations. The support from rising money supply and a steep yield curve are insufficient this month to offset these drags.