Key U.S. Data Releases and Events

Next week, the indicators will lean on the positive side, with overall home sales expected to be up, durable goods orders reaching positive territory, and real consumer spending advancing in May, albeit modestly. Other reports on final first-quarter real GDP and consumer sentiment for June should be about neutral.

The big duck sitting out in the pond next week is the June 22–23 meeting of the Federal Open Market Committee, which will review updated central tendency forecasts, discuss the pros and cons across a wide array of quantitative easing programs, and vote on the federal funds rate. The FOMC will be looking at upward revisions to forecasts of the unemployment rate, but real growth forecasts should remain about unchanged. That implies a higher trajectory for productivity and a lower trajectory for resource utilization—the FOMC should allude to a very benign pricing environment. However, the Fed may have to come to terms with the likely stalling effect of higher mortgage rates and gasoline prices on the timing and strength of the long-awaited recovery. In this regard, the FOMC will likely see downside risks to the core inflation rate, and may rebalance the focus of its quantitative programs in favor of term mortgage, Treasury, and TALF assets and away from increasingly redundant short-term bank credit.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, June 23 – Existing Home Sales (May)

• IHS Global Insight: 4.68 Mil.
• Consensus: 4.80 Mil.
• Last Actual: 4.68 Mil. (Apr.)

What to Look For

• Sales levels are expected to be about flat.

Implications

Existing home sales are being pulled by two forces. Distressed sales and falling house prices are pulling the numbers up in a few states. Job losses are pulling the numbers down in most states. Over the last six months, sales have zigzagged around the 4.6-million mark (annual rate). For May, we are expecting this pattern to continue, with flat sales. Going forward, sales should slide further because of the recent rise in mortgage rates and further job losses.

Wednesday, June 24 – Durable Goods Orders (May)

• IHS Global Insight: +0.4%
• Consensus: -0.8%
• Last Actual: +1.7% (Apr.)

What to Look For

• Overall orders should advance by a mild 0.4%

Implications

Durable goods orders should advance 0.4% for May, with the reversal of a spike in defense orders masking what will likely be a positive performance from some key sectors. The automotive sector should fall back, however, due to distortions from the GM and Chrysler bankruptcy concerns, on top of inventory corrections. Many regional surveys have shown orders turning around, and the less erratic parts of core capital goods should show gains—after a dramatic decline of 25% over the past 12 months.

Wednesday, June 24 – New Home Sales (May)

• IHS Global Insight: 0.367 Mil.
• Consensus: 0.360 Mil.
• Last Actual: 0.352 Mil. (Apr.)

What to Look For

• New home sales are expected to rise by 4.3%

Implications

Single-family housing starts and permits hit bottom in January, and are slowly climbing back. The rebound is probably related to growing demand for new homes. With single-family permits up in May, we project that new home sales improved to a 367,000-unit annual rate.

Wednesday, June 24 – FOMC Rate Decision

• IHS Global Insight: 0.00–0.25%
• Consensus: 0.00–0.25%
• Last Actual: 0.00–0.25%

What to Look For

• FOMC to vote unanimously to keep the federal funds range unchanged at 0.0% to 0.25%.

Implications

The Federal Reserve FOMC is expected to vote unanimously to keep the federal funds rate unchanged in a range of 0.0% to 0.25%. Discussion will focus not so much on the size of the overall quantitative programs, but their composition. A shift in the composition of the Fed's asset program, with less emphasis on increasingly redundant short-term bank credit, and more emphasis on Treasury/mortgage/TALF assets is a direction that the FOMC might consider. It will also review updated central tendency forecasts, with upward revisions expected to the Fed's projected unemployment rate in 2009 and 2010. That suggests even more spare capacity, and the Fed should quell any notions of budding inflation risks.

Thursday, June 25 – Real Gross Domestic Product (Final Q1)

• IHS Global Insight: -5.8%
• Consensus: -5.7%
• Last Actual: -5.7% (Preliminary Q1)

What to Look For

• The final report on first-quarter real GDP will entail very few changes.

Implications

We expect little change in the second revision of the first-quarter GDP figures. Foreign trade revisions should help GDP, while inventories probably fell faster than previously thought, hurting GDP. On balance, we expect a small downward revision, taking the rate of decline to 5.8%, instead of 5.7%. GDP is continuing to fall in the current quarter, although much less steeply—probably down 2.5–3.0%.

Friday, June 26 – Personal Income, Consumption, and Prices (May)

Personal Consumption, Nominal

• IHS Global Insight: +0.3%
• Consensus: +0.3%
• Last Actual: -0.1% (Apr.)

Personal Consumption, Real

• IHS Global Insight: +0.2%
• Last Actual: -0.1% (Apr.)

Core PCE Price Index

• IHS Global Insight: +0.1%
• Consensus: +0.1%
• Last Actual: +0.3% (Apr.)

Personal Income

• IHS Global Insight: +1.2%
• Consensus: +0.3%
• Last Actual: +0.5% (Apr.)

What to Look For

• Personal income to pop upwards due to higher federal transfer payments.
• Real consumer spending to advance by 0.2%.
• Core PCE deflator to edge up by only 0.1%.

Implications

We are expecting a spike in transfer payments during May, as one-time stimulus payments went out to Social Security recipients; this will more than offset a drop in wage and salary disbursements, driving personal income up 1.2%. Consumer spending numbers will get a boost from core retail sales, which increased 0.4% in May, and from light-vehicle sales, which increased from a 9.3-million to a 9.9-million rate. However, we are expecting another sluggish increase in spending on services. Added up, we project that consumer spending increased 0.3% in May; adjusted for inflation, the increase will be 0.2%. The core consumer price index (excluding food and energy) likely increased 0.1% in May. Year-over-year, the gain will be 1.8%, slightly lower than April's 1.9% pace. We expect that the core consumption deflator will post an identical increase to the core CPI.

Friday, June 26 – Michigan Consumer Sentiment Index (Final June)

• IHS Global Insight: 68.0
• Consensus: 69.0
• Last Actual: 69.0 (Preliminary June)

What to Look For

• The Reuters/University of Michigan's Index of Consumer Sentiment is expected to average 68.0 in June, down slightly from the preliminary reading of 69.0 and its May reading of 68.7.

Implications

This represents a pause in the upswing that began in March. Rising gasoline prices and continuing job losses are raising doubts about the near-term economic outlook. Households are focusing on saving, rather than spending, in order to reduce debt burdens and rebuild financial assets.