Fed chairman Bernanke provided an important keynote speech at the end of the week at the G-20 finance meeting in France. Relying on his deep knowledge on previous global crises, he emphasized that the resolution of the global imbalances requires policy changes in both the emerging markets and the industrialized countries—particularly those industrialized countries that have large trade and fiscal deficits, including the United States. Large-trade-deficit countries need to increase national savings, reduce fiscal deficits, and reduce their dependence on external capital. Large-trade-surplus emerging-market countries need to stimulate domestic demand, rely less on export-driven growth, and let their currencies appreciate to dampen overheating. Pretty straightforward and sound advice here—but are the G-20 leaders listening?

Economic indicators during the upcoming week will remain mixed. Consumer confidence gauges are not expected to see much change in February, but reports on the housing market should be downbeat—home sales likely pulled back in January, and home price reports are expected to be weak yet again for December. Durable goods orders are expected to bounce back in January, but this will be driven mainly by a rebound in aircraft orders. Machinery orders may be down, however, partly in response to normal list-price increases in January that may have pulled orders forward into December.

Tuesday, February 22 – Conference Board Consumer Confidence (Feb.)

• IHS Global Insight: 65.0
• Consensus: 63.5
• Last Actual: 65.6 (Jan.)

What to Look For

• The overall index is expected to slip less than a point, to 65.0.

Implications

The Conference Board's Consumer Confidence Index has become very hard to interpret. A change in methodology has bumped up the readings for the last three months by an average of six points. The data prior to November 2010 have not been revised. The new January reading shows confidence at its highest since March 2008. We expect confidence to slip slightly in February, to 65.0, from its revised January level of 65.6. An improving labor market and stock market are helping confidence, but rising gasoline and food prices are hurting. Note that the old series used to show seasonal weakness in February—we simply do not know whether the new series will do the same.

Wednesday, February 23 – Existing Home Sales (Jan.)

• IHS Global Insight: 5.20 Mil.
• Consensus: 5.20 Mil.
• Last Actual: 5.28 Mil. (Dec.)

What to Look For

• We expect a 1.5% drop in existing home sales in January, to 5.20 million units.

Implications

Sales jumped 12.3% in December, to 5.28 million, climbing above the 5.0-million-unit mark for the first time since June 2010. The two main leading indicators are giving mixed signals over how sales fared in January. The Pending Home Sales Index rose 2.0% in December to its best reading in eight months, implying that sales will be up again. But the Mortgage Bankers Association's index of mortgage applications for purchase has been sliding since early December, pointing to a decline in sales. In California—which accounts for about 10% of the market—existing single-family sales were up a seasonally adjusted 5.1% in January, according to the California Association of Realtors. Our call is that lower sales in other states will cancel this out, and that national sales will slide to a 5.20-million-unit rate.

Thursday, February 24 – New Home Sales (Jan.)

• IHS Global Insight: 0.310 Mil.
• Consensus: 0.300 Mil.
• Last Actual: 0.329 Mil (Dec.)

What to Look For

• We expect new home sales to pull back in January, after a strong uptick in December.

Implications

New home sales jumped 17.5% in December, but the increase was suspect because the West accounted for nearly all of the gain in this noisy statistic. The evidence on builder sentiment does not point to a market pickup. For January, we project that sales will drop back by 5.8%, to 310,000 units, with the West accounting for most of the drop.

Thursday, February 24 – Durable Goods Orders (Jan.)

• IHS Global Insight: 3.0%
• Consensus: 3.0%
• Last Actual: -2.5% (Dec.)

What to Look For

• We expect durable goods orders to bounce back 3.0% in January.
• Core orders likely to be down slightly, partly because of typical December-to-January order patterns in certain types of machinery.

Implications

The data face several crosscurrents, but the underlying story is that manufacturing orders are doing very well. Orders did take a drubbing in December as aircraft manufacturers took in $3.6 billion more in cancellations than in new orders, so a return to positive territory for aircraft orders will boost total orders substantially. The machinery sector is likely to be hit by a well-established "first-month-of-the quarter" swoon in orders for turbines and generators, which has been particularly severe in recent Januarys. However, solid gains elsewhere should keep core capital goods orders only slightly negative (down 1.1%) after two months of gains yielding a 5%-plus advance. Defense orders will probably rise, as they were running below their trailing 12-month average in December.

Friday, February 25 – Real Gross Domestic Product (Second estimate, Q4)

• IHS Global Insight: 3.1%
• Consensus: 3.3%
• Last Actual: 3.2% (Advance estimate, Q4)

What to Look For

• We expect very little change in the second estimate of fourth-quarter GDP, just a minor downward revision from 3.2% to 3.1% growth.

Implications

Consumer spending, business equipment and software spending, and state and local government spending are all expected to be revised down. These changes should be mostly offset by upward revisions to private nonresidential construction and net exports. The revisions will still leave the economy poised for stronger growth (around 4%) in the first quarter. Bad weather is the main risk factor; it hurt the economy in January and early February, but those losses will be partially made up over the rest of the quarter.

Friday, February 25 – Michigan Consumer Sentiment Index (Final Feb.)

• IHS Global Insight: 75.4
• Consensus: 75.4
• Last Actual: 75.1 (Preliminary Feb.)

What to Look For

• We expect the Reuters/Michigan consumer sentiment index to edge up to 75.4 for February, from 74.2 in January.

Implications

Consumers are feeling more optimistic because of gains in the stock market and an improving trend in the labor market, but their optimism remains constrained by higher gas and food prices, as well as a poor outlook on the housing front.