High stakes negotiations continued over the preceding week in Washington to break the impasse on a fiscal 2011 budget agreement. Congress and the president were engaged in negotiations over both the size of the overall budget haircut, and a number of tricky policy measures. While another continuing resolution would avoid a near-term government shutdown, the president has been showing stiff resistance to signing another continuing resolution in the absence of a framework agreement on the budget. On late Friday afternoon, there was a distinct possibility that negotiations would continue over the weekend. Should Congress and the president agree on the general framework of a budget agreement over the weekend, the likely scenario would be a new stopgap continuing resolution on Monday morning, while Congress would then finalize the details of the budget agreement over the next week or so.

However, in the event that no framework budget agreement emerges in the next couple of days, a shutdown of non-essential federal government services is a distinct possibility. This would not be overly disruptive as long as it did not persist for longer than a few days, or as long as a week or two. Should the federal government shut down next week, however, we would not receive reports on the trade balance, consumer and producer prices, and retail sales. We would receive the Fed's report on industrial production, the Michigan survey of consumer sentiment, and other regional manufacturing surveys—so we would not be flying blind on the economy.

In the absence of a federal government shutdown, we expect to see a narrowing of the February trade balance, but further upward pressure on top-level producer and consumer prices. Core prices should move up moderately. Industrial production is expected to see a solid gain in March, but the Michigan index of consumer sentiment will likely drop by another point in early April.

Tuesday, April 12 – Trade Balance (Feb.)

• IHS Global Insight: -$44.3 Billion
• Consensus: -$44.0 Billion
• Last Actual: -$46.3 Billion (Jan.)

What to Look For

• We expect the trade deficit to narrow to $44.3 billion in February, from $46.3 billion in January.

Implications

We expect exports to be roughly flat and imports to decline, after surging in January. A drop in oil import volumes should more than offset higher oil prices, so that the oil import bill declines—only temporarily, given the surge in oil prices in March. Automotive and industrial supplies imports and exports should drop after two strong months in December-January. Consumer goods imports should increase, with part of the pull coming from lean inventories. For the first quarter of 2011, strong export growth should prove just enough counterweight to rebounding imports to provide a small positive contribution to GDP growth.

Wednesday, April 13 – Retail Sales (Mar.)

Total

• IHS Global Insight: 0.7%
• Consensus: 0.7%
• Last Actual: 0.7% (Feb.)

Less Autos

• IHS Global Insight: 1.1%
• Consensus: 0.4%
• Last Actual: 0.6% (Feb.)

What to Look For

• Retail sales are expected to increase 0.7% in March overall, and by 1.1% excluding autos.

Implications

Auto sales fell in March, in large part because of scaled-back incentives at GM. Sales at gasoline stations were pushed up by rising gasoline prices; other retail channels are expected to exhibit modest growth. Rising prices—especially for energy and food—have swallowed up the extra income that consumers received from the tax compromise passed by the Obama administration and Congress in December.  The main support for spending is coming from the relatively strong employment growth over the past couple of months.

Thursday, April 14 – Producer Price Index (Mar.)

Total

• IHS Global Insight: 0.8%
• Consensus: 1.1%
• Last Actual: 1.6% (Feb.)

Core

• IHS Global Insight: 0.2%
• Consensus: 0.2%
• Last Actual: 0.2% (Feb.)

What to Look For

• The overall index should climb 0.8% in March, with energy and food the worst offenders.
• Core prices are expected to climb only 0.2%

Implications

Rising oil prices should make energy spike more than 2% again. Food will not spike as it did last month (when a freeze devastated fresh vegetable supplies), but food commodity prices do keep climbing. Core prices should probably climb around their recent average rate of 0.2%, with some pass-through of higher commodity costs pushing prices higher.

Friday, April 15 – Consumer Price Index (Mar.)

Total

• IHS Global Insight: 0.5%
• Consensus: 0.5%
• Last Actual: 0.5% (Feb.)

Core

• IHS Global Insight: 0.2%
• Consensus: 0.2%
• Last Actual: 0.2% (Feb.)

What to Look For

• Top-level prices should rise by 0.5%.
• Core inflation should remain restrained, at 0.2%.

Implications

Consumer prices should rise 0.5% in March, with gasoline once again the key driver. Food prices should continue to rise sharply, too. Core consumer prices should remain comparatively restrained, with a 0.2% increase (but that's still a faster increase than we were seeing last year).

Friday, April 15 – Industrial Production (Mar.)

• IHS Global Insight: 0.6%
• Consensus: 0.5%
• Last Actual: -0.1% (Feb.)

What to Look For

• Production is expected to rise a solid 0.6%.

Implications

Industrial production growth should be a solid 0.6% in March, with no major distortions like the two-month downturn in electricity caused by poor weather in January and February. March weather was very normal. Also missing will be a major shove upwards from the motor vehicle segment, as supply-chain issues due to the Japan earthquake prevented a planned output boost. The major force behind higher output will be from core manufacturing, based on the evidence from the ISM manufacturing survey and from factory hiring. The goods sector of the economy is in a mini-boomlet, and March gains should show that.

Friday, April 15 – Michigan Consumer Sentiment Index (Preliminary Apr.)

• IHS Global Insight: 66.5
• Consensus: 69.0
• Last Actual: 67.5 (Final Mar.)

What to Look For

• The consumer sentiment index is expected to slide about a point, to 66.5.

Implications

The early-April Reuters/Michigan consumer sentiment index is expected to fall to 66.5, from the March reading of 67.5. Rising energy and food prices, falling home prices, stock market volatility, and the turmoil in the Middle East have taken their toll on consumer sentiment—especially its expectations component. The prospect of a federal government shutdown may also take its toll on confidence.