Equity markets sold off sharply through Wednesday, but then rebounded on Thursday and Friday. The 10-year bond yield collapsed to near 3.22% on Thursday, and partly recuperated to near 3.28% on Friday. Currency markets were rocked by a sharp appreciation of the yen as massive Japanese foreign asset holdings were being repatriated to Japan, a situation that was only partially reversed at the end of the week by coordinated G-7 intervention in the currency markets.

In terms of economic indicators, the U.S. economy still looked very solid through March, but consumer confidence and spending momentum is in the process of unwinding rapidly, and the housing market is still deflating. The short-term outlook for the United States certainly looks much more subdued than it did even a couple of weeks ago.

Next week, the major economic indicators will continue to pick up these evolving themes. Overall home sales are expected to have declined in February, while consumer confidence likely took a large negative hit. Durable goods orders are expected to have risen yet again in February, suggesting that the manufacturing and capital goods industries still have a good head of steam. The silver lining to recent developments is that mortgage rates are in the process of tracking back down well below 5%, which ultimately should provide some support for the housing market.

Monday, March 21 – Existing Home Sales (Feb.)

• IHS Global Insight: 5.00 Mil.
• Consensus: 5.10 Mil.
• Last Actual: 5.36 Mil. (Jan.)

What to Look For

• Existing home sales are expected to fall back in February.

Implications

The Pending Home Sales Index declined 3.2% in December and 2.8% in January, while the Mortgage Bankers Association's Purchases Index dropped 7.9% in February. Based on these leading indicators, we estimate that existing home sales dropped almost 7% in February to a 5.0-million-unit annual rate. The published data show existing home sales up 39% from July 2010 to January 2011, but the figures remain suspect. The Wall Street Journal reported on February 23 that data compiled by Core Logic, a company that also tracks home sales, indicated that the National Association of Realtors' (NAR) existing home sales numbers were too high by as much as 20%. The NAR says that it is studying the issue and that it may put out revised numbers later this year. Bottom line: the market for existing homes remains depressed.

Wednesday, March 23 – New Home Sales (Feb.)

• IHS Global Insight: 0.284 Mil.
• Consensus: 0.290 Mil.
• Last Actual: 0.284 Mil (Jan.)

What to Look For

• New home sales are expected to be flat in February.

Implications

The new home sales numbers are jumpy, subject to revisions, and not well estimated. For these reasons, we recommend focusing on recent trends rather than on the latest monthly estimates. A three-month moving average shows new home sales still stuck at the bottom, with sales starting to pick up in the West, stuck at the bottom in the South, but still declining in the Northeast and Midwest. February's poor housing permit figures indicate that housing remains stuck at the bottom, and we project no change in new home sales this month.

Thursday, March 24 – Durable Goods Orders (Feb.)

• IHS Global Insight: 1.6%
• Consensus: 1.1%
• Last Actual: 3.2% (Jan.)

What to Look For

• Durable goods orders are expected to move up by 1.6%.

Implications

February durable goods orders should pop up 1.6%, with the biggest kick coming from machinery orders bouncing back after their by-now-familiar "first-month-of-the-quarter" swoon. Core capital goods orders should reverse two-thirds of their January 6.2% plunge, boosted by the bounce in machinery. In addition, aircraft orders should improve for the second month in a row, after a dismal December. The underlying trend for durables orders remains strongly upward, as indicated in all major national and regional surveys of manufacturers.

Friday, March 25 – Real Gross Domestic Product (Third estimate, Q4)

• IHS Global Insight: 3.4%
• Consensus: 3.0%
• Last Actual: 2.8% (Second estimate, Q4)

What to Look For

• We expect fourth-quarter real GDP growth to be revised up from 2.8% to 3.4%.

Implications

There are two main contributing factors: faster inventory accumulation (based on revised data for December inventories) and faster growth in consumer spending on services (based on the Census Bureau's Quarterly Services Survey). The bad news is that first-quarter GDP growth now seems likely to decelerate rather than accelerate, landing somewhere in the mid-2% range.

Friday, March 25 – Michigan Consumer Sentiment Index (Final Mar.)

• IHS Global Insight: 67.0
• Consensus: 68.0
• Last Actual: 68.2 (Preliminary Mar.)

What to Look For

• The final reading for March will be down sharply—by about 10.5 points, to a level of 67.0—compared with a reading of 77.5 in February.

Implications

The preliminary March reading of the Reuters/Michigan consumer sentiment index took a big hit, largely due to soaring gasoline prices. Since then, gasoline prices have edged a bit higher, while the Japanese earthquake has introduced new uncertainties and has hurt global stock markets. We expect the month's final sentiment reading to dip a bit further, to 67.0, from the preliminary 68.2 (February was 77.5).