Next week, reports will be mixed and somewhat ambiguous. On net, the evidence is still positive and continues to point to a nascent recovery, but the feeble strength of spending clearly suggests that strong policy support will be needed for some period of time.
U.S equity prices declined while bond prices rose sharply last week, as a "reality check" wave rippled through the markets. The fragile underpinnings of the recovery were apparent in weak housing market reports, a sharp slowdown in the growth of industrial output, and evidence of very weak commercial construction activity.
Next week, reports will be mixed and somewhat ambiguous. On the plus side, existing home sales are expected to surge in October, consumer confidence measures will drift up slightly in November (adding a small dose of positive spin to the expectation that real consumer spending got off to a good start in the quarter), and durable goods orders likely rose in October. On the negative side, third-quarter real GDP growth will be revised down by a considerable margin, while October new home sales are expected to slip.
On net, the evidence is still positive and continues to point to a nascent recovery, but the feeble strength of spending clearly suggests that strong policy support will be needed for some period of time.
KEY U.S. DATA RELEASES THIS WEEK
Monday, November 23 – Existing Home Sales (Oct.)
What to Look For
Implications
The Pending Home Sales Index increased 6.1% in September, rising for the eighth straight month and reaching its highest level since December 2006. The increase points to an October-November surge in existing home sales. For October, we project that existing home sales rose 5.0%, to a 5.85-million-unit annual rate. The surge is coming from the tax credit for first-time homebuyers, which was originally scheduled to expire November 30, but has now been extended into next year.
Tuesday, November 24 – Real Gross Domestic Product (Second estimate, Q3)
What to Look For
Implications
The biggest downward revisions to spending will come from private nonresidential construction (falling more steeply than originally estimated), and from foreign trade. Exports and imports will both be revised up, but the import revision will be the larger, implying that more of the domestic demand improvement went to foreign producers than initially estimated. Inventories are expected to be revised down, accounting for about one-fourth of the overall GDP revision, and supplying some comfort by suggesting that less inventory adjustment will be required in future.
Tuesday, November 24 – Conference Board Consumer Confidence (Nov.)
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IHS Global Insight: 51.0
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Consensus: 47.0
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Last Actual: 47.7 (Oct.)
What to Look For
Implications
This is consistent with a gradual improvement in the ABC/Washington Post Consumer Comfort Index through mid-November. A rising stock market is giving a lift to household finances and buying plans as the holiday shopping season begins. But with the unemployment rate above 10% and job losses continuing, consumers will spend cautiously.
Wednesday, November 25 – Durable Goods Orders (Oct.)
What to Look For
Implications
Durable goods should get some positive help from volatile sectors in October, with aircraft orders rising and more than offsetting an expected pullback in defense orders. A recovery in reported motor vehicle orders is long overdue, given the rise in production since June, and core capital goods orders should improve again.
Wednesday, November 25 – Personal Income, Consumption, and Prices (Oct.)
Personal Consumption, Nominal
Personal Consumption, Real
Core PCE Price Index
Personal Income
What to Look For
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Personal income to edge up only 0.1%, while real consumer spending rises 0.4%.
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The core PCE index is expected to rise by 0.1%.
Implications
Labor compensation may post a small gain in October, since the average workweek was down 0.2%, while hourly compensation was up 0.3%. Outside of this, gains in transfer payments and rental income will be mostly offset by further drops in dividends. Overall, personal income should be up a meager 0.1%. Control retail sales (which drive about one-third of consumer spending in the national accounts) rose 0.5% in October, similar to the (downwardly revised) gains in August and September. In addition, spending on vehicles will rise sharply. Overall, we expect consumer spending to rise 0.6% in nominal dollars and 0.4% after adjusting for inflation in October, a solid start to the fourth quarter. Based on October's CPI core readings, we expect the core PCE price index to rise 0.1% in October, with the increase coming mainly from light vehicles. Year-on-year, the core inflation rate will inch up a tenth of a point, to 1.4%.
Wednesday, November 25 – Michigan Consumer Sentiment Index (Final Nov.)
What to Look For
Implications
However, consumer sentiment will still below its October level of 70.6. The index hit a cyclical low of 55.3 in November 2008 and has been fluctuating in the 65–75 range since April. Consumers expect rising unemployment and stagnant incomes in the year ahead, forces that will restrain spending and reinforce the trend towards value shopping.
Wednesday, November 25 – New Home Sales (Oct.)
What to Look For
Implications
Although existing home sales have picked up, selling a new home has never been harder. The median time for selling a new home now stands at a record 13 months (data start in 1963). The latest single-family housing permit numbers (single-family permits have slipped the past two months) imply that builders were still having trouble selling homes in October, despite the kick from the first-time homebuyers' tax credit. Our projection is that sales will be down a notch, slipping below 400,000 units.
