By James Mehring The economy entered the new year in pretty good shape, according to the latest batch of data.
The December job report came in slightly below forecasts, but overall it was mostly positive. Among the major sectors, only retailing showed a decline. Manufacturing payrolls actually added 3,000 jobs in December. What's more, the average workweek nudged back up to 33.8 hours, and weekly earnings for non-farm workers climbed 0.4% from November.
The decline in seasonally adjusted retail payrolls over the past two months of 10,000 workers may be deceiving. Seasonal adjustments used by the Labor Dept. may not be in line with evolving trends in holiday shopping. Growth in online shopping and gift cards are changing shopping patterns, possibly limiting the need for massive seasonal hiring by traditional retailers. Even so, the non-adjusted retail employment figures showed an increase of 357,000 for November, and 152,000 more retail jobs in December.
HEALTHY SIGN. The latest employment numbers are favorable for consumer spending. Average hourly earnings in December were up 2.7% from a year ago and have been on a gradual ascent since the middle of the year. Hourly wages measured by the Labor Dept. are rising faster than inflation and should continue to do so, as long energy prices don't flare up again for a prolonged period.
New orders data for November points to a healthy industrial production report for December. According to economists surveyed by Action Economics, industrial output rose another 0.4% in December. With orders up 1.2% in November -- 2.3% if defense categories are excluded -- the outlook for manufacturers appears solid. Throw in lean inventory to sales levels, and there are reasons to expect factories will remain busy.
To top it all off, there are scant signs that government spending will be a drag on growth soon. The deficit for fiscal year 2005 is outpacing 2004 through the first two months. What's more, tax revenue so far this fiscal year is better than the comparable period in FY 2004.
The latest data has economists thinking the fourth quarter may be anything but soft. Growth near 4% at an annualized rate is increasingly likely for the final quarter of 2004. And given the latest indicators, there aren't too many reasons to expect a slowdown with the change of the calendar.
Here's the economic calendar.
Note: The bond market will close early on Friday, Jan. 14, ahead of the Martin Luther King Day holiday.
MEETING OF NOTE
Monday, Jan. 10, 12 p.m. EST
Federal Reserve Bank of Atlanta President Jack Guynn discusses the U.S. economic outlook to the Rotary Club of Atlanta in Atlanta.
2:15 p.m. EST
International Monetary Fund First Deputy Managing Director Anne Krueger and U.S. Treasury Assistant Secretary for International Affairs Randal Quarles speak at a conference on China and the global economy in Washington, D.C.
2:30 p.m. EST
Federal Reserve Board Governor Edward Gramlich talks about raising national savings at an International Forum annual meeting in Scottsdale, Arizona.
Monday, Jan. 10
Alcoa (AA), Genentech (DNA), and more.
WHOLESALE SALES AND INVENTORIES
Monday, Jan. 10, 10 a.m. EST
Wholesale sales should continue to climb at a solid pace. The median forecast among economists surveyed by Action Economics LLC is for a 0.8% increase in November sales. In October, sales surged by 1.6%, after a 0.8% rise in September. Compared to the same month in 2003, sales were up 14.3% in October, after a yearly pace of 14.8% in both September and August.
Wholesaler inventories also shot up in October, with a 1.1% gain. In September, inventories rose by 0.6%, after growing by more than 1% per month from May through August.
Tuesday, Jan. 11
Intel (INTC), and more.
ICSC-UBS STORE SALES
Tuesday, Jan. 11, 7:45 a.m. ESTB
This weekly tracking of retail sales, assembled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ending Jan. 8. In the week ended Jan. 1, seasonally-adjusted sales grew by 0.2%, after a 2.7% surge in the prior week on last-minute holiday shopping and a 1.6% gain over the week ended Dec. 18.
INSTINET REDBOOK RESEARCH STORE SALES
Tuesday, Jan. 11, 8:55 a.m. EST
This weekly measure of retail activity will report on sales for the first fiscal week of January, ending Jan. 8. In December, sales ended up 0.2% better than November. For the full month of November, sales were down 0.5% from October.
RICHMOND FED SURVEY
Tuesday, Jan. 11, 10 a.m. EST
The Richmond Federal Reserve Bank will release its December survey of business conditions in the Richmond Fed district. The November survey showed that activity showed considerably, but prospects for the coming six months were still pretty upbeat.
The headline index fell to -3 in November, from 14 in October, and 22 in September. The new orders, capacity utilization, backlogged-orders indexes also deteriorated in November. At the same time, the reading for number of employees inched up to 1, while the index tracking the average workweek stumbled to -7, from -5 in October, and 1 in September. A negative reading implies an outright decline in total hours worked by factory employees in the region.
With regards to the next six months, the main reading eased to 32, from 35 in the previous month, but remained above the September level of 23. Respondents were also a little less ebullient about future volumes of new orders, and level of unfilled orders, although the latest results were still better than the September readings. Even so, factories in the region expressed intentions to trim payrolls.
MEETING OF NOTE
Wednesday, Jan. 12, 8:30 a.m. EST
Federal Reserve Bank of Boston President Cathy Minehan addresses attendants of a Connecticut Business and Industry Association economic summit in Cromwell, Conn.
9:15 p.m. EST
Federal Reserve Board Governor Edward Gramlich speaks about low income and affordable housing at a Center for Economic & Policy Research conference in Washington, D.C.
Federal Reserve Board Vice Chairman Roger Ferguson speaks about recovering economies at the Stanford Institute for Economic Policy Research in Palo Alto, Calif.
Wednesday, Jan. 12
Apple Computer (AAPL), and more.
Wednesday, Jan. 12, 7 a.m. EST
The Mortgage Bankers Assn. releases its tally of mortgage applications for both homebuying and refinancing for the week ending Jan. 7. In the week ended Dec. 31, the purchase index dropped to 417.3, the lowest level since early February of 2004. Over the week ended Dec. 24, the index rose to 483.8, from 471.1 in the prior period. The latest reading of the four-week moving average fell to 465.3, from 483.7 over the week ended Dec. 24.
The average rate on a conventional 30-year mortgage, according to HSH Associates, rose to 5.88%, from to 5.78% in the period ended Dec. 24.
The refi index also retreated. The latest reading was 1701.3, down from 1803.9 in the previous week, and 1958.2 over the week ended Dec. 17. The decline pulled the four-week moving average down to 1829, from 1876.3 in the week ended Dec. 24.
Wednesday, Jan. 12, 8:30 a.m. EST
The monthly trade deficit most likely narrowed a little in November. The U.S. trade deficit for goods and services is expected to be $53.4 billion, according to economists queried by Action Economics LLC. Another record monthly trade gap was established in October, with a $55.5 billion deficit, just above the June total of $55.3 billion. In September, the deficit was $50.9 billion.
Lower oil prices should contribute to a smaller November deficit. Since hitting a record high of $55 per barrel, the price of West-Texas intermediate crude has fallen over 25%. The Commerce Dept. report measures the value, not volume, of a good or service.
The recent spate of monthly trade gaps exceeding $50 billion is due in part to strong demand. Exports were up 11.3% from a year ago in October and are on track to post an 11.5% gain for all of 2004 vs. 2003. However, imports are on pace to grow 14.6% this year. Excluding crude oil, petroleum products, and fuel oil, imports are still on pace to grow by over 13% this year. With monthly exports a little less than two-thirds the amount of imports, the rate of growth in exports will have to accelerate sharply, or imports will have to slow considerably in order for the trade deficit to narrow. The falling dollar is a positive factor for trimming the trade gap, but is unlikely to single-handedly reverse the trend of steadily rising trade deficits.
Wednesday, Jan. 12, 2 p.m. EST
The federal government most likely increased its budget deficit in the third month of the 2005 fiscal year. Economists surveyed by Action Economics LLC expect Treasury Dept.'s report to show a $5 billion shortfall for December. In November, the deficit was $57.9 billion, after a $57.3 billion gap for the opening month of FY 2005. So far, both revenues and outlays are above the comparable year-ago levels.
The FY 2005 deficit is up to $115.2 billion, compared to 112.5 billion in the first two months of FY 2004. According to the July forecast from the Office of Management and Budget, the budget gap for the current fiscal year should be $331.2 billion vs. $412.3 billion in the prior year, and a $377.1 billion shortfall in FY 2003.
MEETING OF NOTE
Thursday, Jan. 13, 8:45 a.m. EST
Federal Reserve Bank of New York President Timothy Geithner addresses the Risk Management Association in New York City.
6 p.m. EST
Federal Reserve Bank of St. Louis President William Poole speaks to the St. Louis Society of Financial Analysts in St. Louis.
Thursday, Jan. 13
Sun Microsystems (SUNW), and more.
Thursday, Jan. 13, 8:30 a.m. EST
First-time claims for jobless benefits for the week ended Jan. 1 probably eased to 335,000. Jobless claims stood at 364,000 in the week ended Jan. 1, after hitting a downwardly revised level of 321,000 in the prior period. The unusually large jump may be due in part to seasonal hiring around the holidays. Claims could remain a bit volatile over the next couple of weeks.
The four-week moving average was 333,000, up a little from 332,300 in the week ended Dec. 25. During the week of Dec. 25, continuing jobless claims grew to 2.84 million, from 2.78 million in the week ended Dec. 18. The latest continuing claims level is the largest since late September.
Thursday, Jan. 13, 8:30 a.m. EST
Retail sales probably improved in December. Economists surveyed by Action Economics LLC are forecasting a 0.7% gain for the final month of 2004. In November, sales were up just 0.1%, after posting solid increases of 0.8% in October, and 1.6% in September.
Auto sales should be a plus on overall sales. Light-vehicle sales hit an annual pace of 18.4 million in December, after a pace of 16.4 million vehicles in November. Excluding autos, the median forecast is for a 0.5% gain in December retail sales. In November, ex-auto retail sales were up 1.1%, after a 0.8% gain in October.
Holiday shoppers waited until the last moment this year. After signs of tepid sales in late November and early December, weekly chain-store sales figures bounced back. In addition, Wal-Mart (WMT) reported solid post-Christmas sales results. The post-holiday shopping sprees are gaining importance due to increased usage of gift cards. The trend should mean a positive boost to January retail-sales results as well.
IMPORT AND EXPORT PRICES
Thursday, Jan. 13, 8:30 a.m. EST
Import prices probably fell in December. The consensus among economists queried by Action Economics LLC is for a 0.4% fall last month. The drop will be due in large part to lower oil prices. In November, import prices rose just 0.2%, following a 1.6% jump in October.
Excluding petroleum, import prices posted a 0.7% leap in November. While crude oil prices fell, natural gas prices took off. Big gains in vegetable, coffee, and cocoa also pushed the non-oil measure of import prices higher. Compared to the same month a year ago, overall import prices slowed to a 9.5% rate, from a yearly rate of 9.9% in October. Excluding energy, the yearly gain picked up to 3.4%, from 2.9% in October.
November export prices most likely increased by 0.3% for a second straight month. In October, export prices rose by 0.7%, after a 0.4% gain in September. Compared to a year ago, export prices were up 4.3% in November, down slightly from the yearly pace of 4.5% in October.
Export prices for agricultural commodities slipped 0.1%, after a 1.3% plunge in October. After peaking at a yearly rate of 23.4% in April, prices for agricultural goods were down 5.2% from a year ago in November. The Labor Dept. data showed some acceleration in prices in other categories. Capital goods prices were up 1.1% from a year ago in November, and prices for industrial supplies and materials jumped 15.5% over the same period. However, prices for consumer goods exports slowed to a yearly pace of 0.9% in November, from 1% in October, and 1.6% in September.
PRODUCER PRICE INDEX
Friday, Dec. 10, 8:30 a.m. EST
Producer prices for finished goods sold by U.S. businesses are expected to have slowed in December. The median estimate among economists surveyed by Action Economics LLC is for a 0.2% increase. In November, prices were up 0.5%, after a 1.7% surge in October. Volatile oil prices have had a large impact on the headline index. Based on the December forecast, producer prices would be 5% higher than a year ago, after jumping to a yearly pace of 5% in November.
Excluding food and energy costs, core prices probably increased 0.2% for a second straight month. In August, September and October, core producer prices grew by 0.3% per month. Based on the December forecast, core producer prices would be up 2.3% from a year ago, after rising by 1.9% from a year ago in November.
Friday, Jan. 14, 8:30 a.m. EST
Inventories held by manufacturers, wholesalers, and retailers are expected to have grown by 0.6% in November. That's the consensus among economists surveyed by Action Economics LLC. Inventories expanded by 0.2% in October, after holding steady in September.
The Commerce Dept. already released November factory inventory numbers. Manufacturers' reported that their inventories rose by 0.7%, after a 0.9% rise in October. The wholesale inventory report on Jan. 10 will also shed some light on the overall level of inventories.
Friday, Jan. 14, 9:15 a.m. EST
U.S. industrial production probably expanded 0.4% during December, according to economists surveyed by Action Economics LLC. In November, industrial output grew 0.2%, after a 0.7% surge in October.
The average operating rate for all industries most likely climbed to 78.9%, from a revised level of 78.7% in November, and 78.6% in October. In December, the Federal Reserve released its annual revisions report. The updated figures showed industrial capacity grew at a slower pace than first reported, leading to a higher capacity utilization rate.
The revised figures show that less excess capacity exists. If the economy keeps growing at a healthy rate, factories are likely to accelerate capacity expansion. Indeed, after shrinking through most of 2003, the pace slowly picked up 2004. In November, industrial capacity grew by 1.2% from a year ago. If companies do add to capacity, growth in capital investment should remain strong. Mehring is an economics editor for BusinessWeek in New York