Key economic indicators next week will continue to portray an economic recovery that is gathering momentum. While additional momentum is good news, and we are expecting to see a sharp acceleration in growth in the third quarter to near 3.7%, the temporary boosts to spending and real growth connected with the "cash-for-clunkers" program and the first-time homebuyers tax credit will dissipate by year-end, and growth is expected to dip back below 2% in early 2010.

With this prospective slowdown on the radar screen, core inflation running below the Fed's target, and private-sector bank credit still shrinking, the FOMC is likely to maintain an aggressive stance on monetary policy. Thus, in the press release following the meeting on September 23, we expect the Fed to maintain the current very low range for the federal funds rate, and retain its targets for securities purchases. The risks to growth in early 2010 are too salient to entertain notions of a change in policy at this very early stage of the recovery.

KEY U.S. DATA RELEASES THIS WEEK

Wednesday, September 23 – FOMC Rate Decision

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

What to Look For

• The FOMC is expected to vote to keep the federal funds rate in the 0.00–0.25% range, and retain existing targets and timetables for securities purchases.

Implications

Discussion of economic conditions will mention recent improvements in activity, but following the theme of Chairman Bernanke's recent speech, the recovery is expected to be relatively weak and substantial resource slack will persist for some time. The FOMC will also likely reiterate that inflation will remain subdued, and that economic conditions warrant exceptionally low levels for the federal funds rate over an extended period.

Thursday, September 24 – Existing Home Sales (Aug.)

• IHS Global Insight: 5.41 Mil.
• Consensus: 5.35 Mil.
• Last Actual: 5.24 Mil. (Jul.)

What to Look For

• Existing home sales likely rose 3.2%, to 5.4-million units.

Implications

The Pending Home Sales Index increased 3.2% in July, rising for the sixth straight month, and pointing to stronger home sales in August. Based on this reading, we project that existing home sales in August also rose 3.2%, to 5.41-million units.

Friday, September 25 – Durable Goods Orders (Aug.)

• IHS Global Insight: +0.7%
• Consensus: +0.4%
• Last Actual: +5.1% (Jul.)

What to Look For

• Durables orders should be up 0.7%.

Implications

Motor vehicle orders should continue to march upward in response to lean dealer inventories, while machinery orders are expected to rebound from a sharp drop in the previous month. The rebound in machinery should make it another excellent month for core capital goods orders, but lower aircraft orders will temper that strength in the aggregate. Business equipment investment is kicking into gear and should be a positive contributor to GDP growth in the third and fourth quarters of 2009.

Friday, September 25 – Michigan Consumer Sentiment Index (Final Sep.)

• IHS Global Insight: 70.0
• Consensus: 70.5
• Last Actual: 70.2 (Preliminary Sep.)

What to Look For

• The Reuters/University of Michigan’s consumer sentiment index is expected to average 70.0 in September, little changed from its preliminary reading, but up from 65.7 in August.

Implications

While the stock market rally is buoying sentiment, rising unemployment and general downward pressure on wages and salaries continue to cause anxiety. Real consumer spending is expected to increase at a 2.5% annual rate in the third quarter, with light-vehicle sales under the "cash-for-clunkers" program accounting for much of the gain. Beyond that, however, real consumer spending will relapse to less than 1% growth in the fourth quarter of 2009, and sail below the 2% threshold during the first half of 2010.

Friday, September 25 – New Home Sales (Aug.)

• IHS Global Insight: 0.450 Mil.
• Consensus: 0.440 Mil.
• Last Actual: 0.433 Mil. (Jul.)

What to Look For

• New home sales are expected to be up 3.9%, to 450,000.

Implications

Single-family housing permits were flat in August, which should point to a flat reading for new home sales. Nonetheless, we are projecting a 3.9% increase, to 450,000, because of the strong positive impact that the tax credit for first-time homebuyers is having on demand.