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Key U.S. Data Releases and Events11 Apr 08Recent data on chain-store sales and consumer sentiment point to some downside risk to real GDP growth in the second quarter, and the indicators expected next week will do little to ease these concerns. Despite the Friday downdraft in equities, the overall tone of the U.S. financial market improved last week, as the acute liquidity crisis that hit the markets in mid-March continued to ease. The Federal Reserve's aggressive actions to provide high volumes of liquidity through the term auction facility, term securities lending facility (TSLF), and broader discount window access have succeeded in defusing the immediate crisis. Indeed, the most recent (April 10) TSLF auction was undersubscribed, and spreads on GSE agency bonds have continued to ease. Notwithstanding notable progress on the liquidity front, however, market concerns about cyclical risk continued to escalate, putting continued pressure on LIBOR and corporate bond borrowing spreads. Recent indicators indeed point to some downside risk to real GDP growth in the second quarter, and indicators next week will do little to ease these concerns. March retail sales are expected to decline for the second consecutive month and, similarly, March industrial production will likely mirror this pattern of back-to-back declines, while March housing starts and permits tumble again sharply. Core producer and consumer prices should rise a moderate 0.2% in March. But rising pipeline cost pressures from energy and other commodities continue to frustrate expectations of better overall inflation performance, as the economy weakens and the unemployment rate rises. KEY U.S. DATA RELEASES AND EVENTS THIS WEEK Monday, April 14 – Retail Sales (Mar.) Total Less Autos What to Look For
Implications March chain-store reports were very weak, with sales down on both a year-on-year and month-to-month basis. Higher gasoline prices probably pushed up gasoline station sales. Consumer spending closed the first quarter with a whimper, and there is very little momentum for spending entering the second quarter. Record-low readings for consumer sentiment suggest that there are mounting downside risks to consumer spending during the first half of 2008, despite the anticipated boost from the tax rebates, which should start to impact spending in June. Tuesday, April 15 – Producer Price Index (Mar.) Total Core What to Look For
Implications Producer prices likely jumped 0.4% in March on continued strength in energy prices, led by another sharp rise in natural gas prices. After falling last month, look for food prices to rebound, also applying pressure to the top line. Excluding food and energy, we expect "core" producer gains to decelerate to 0.2% in February, following two consecutive outsized increases of 0.4% and 0.5%. Wednesday, April 16– Housing Starts and Building Permits (Mar.) Starts Permits What to Look For
Implications Builders continue to work off excess inventories. The number of unsold new homes has fallen 11 months in a row, and the number of unsold completed new homes has fallen two straight months since setting a record in December 2007. Conditions in the housing market are as bad as they have ever been. Credit is tight, raw material costs are rising, inventories remain high, house prices are falling in more places—at an accelerated rate nationally—and the economy is losing jobs. We think that housing starts will drop another 20% before they hit bottom. We are expecting a big drop (about 20%) in multiple-unit starts for March, payback for two straight spikes that appear temporary. Single-family starts should drop about 6%. Added together, we estimate that housing starts tumbled 10% last month. Housing permits will drop another 5%. Wednesday, April 16 – Consumer Price Index (Mar.) Total Core What to Look For
Implications We expect that consumer prices rose 0.3% in March, on a rebound in energy prices and continued strength in food prices. Excluding food and energy, "core" consumer prices likely increased 0.2%, after being unchanged in the previous month. The Federal Reserve would eagerly welcome a second consecutive sub-normal reading to help demonstrate to itself, and the public at large, that inflationary pressures are on the wane. However, rising pipeline cost pressures from energy and other commodities continue to frustrate expectations of a better overall inflation performance, as the economy weakens and the unemployment rate rises. Wednesday, April 16 – Industrial Production (Mar.) Global Insight: -0.2% What to Look For
Implications We expect to see a steep drop in motor vehicle output because of the strike at American Axle, which closed assembly lines. Manufacturing hours worked were flat because a longer workweek offset a drop in the number of employees. Manufacturing is contracting, but the good news is that the decline is gradual, with strong export demand providing support. by Brian Bethune and Nigel Gault
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