At the end of last year, signs that the U.S. economy continued to chug along -- as other countries slowed down -- provided a reprieve for the sagging dollar. But new data on America's deficit duo of foreign trade and the federal budget may very well renew the downward pressure on the greenback.
At the end of last December, the Federal Reserve's broad measure of the trade-weighted dollar fell to its lowest level since November, 1997. Since then, the dollar has firmed and, according to the Fed measure, stands a little more than 1% above the December low.
EXPORT ADVANTAGE. This week, the federal government releases its latest monthly budget data. According to economists surveyed by Action Economics, the February report is likely to show a sizeable $95.9 billion shortfall. If the economists are right, it would be the largest monthly deficit since last February's record $96.7 billion deficit.
The January trade report will also provide some important information for investors and economists alike. Economists see the monthly trade gap coming in close to the December level. However, a surprise either way could have an effect on the dollar. Indeed, if higher oil prices and strong consumer demand for imports lead to an unexpectedly large trade deficit, there could be some downward pressure on the greenback.
At the same time, figures on U.S. exports are important no matter what happens with imports. In 2004, American exports grew by 12.3%, led by a 13.2% jump in exports of goods. Exports are getting a boost from the lower dollar, which makes American-made goods and services less expensive when priced in yen or Canadian dollars. In particular, American industry has benefited greatly during the latest upswing in exports. Capital goods exports were up 12.8% in 2004 vs. 2003, while industrial supplies, which include chemicals, metals, and other raw materials, jumped by 17.6%.
STUBBORN DEFICIT. Unfortunately, potential demand for U.S. exports in the short term may be hindered by sluggish economic growth in areas such as the euro zone and Japan.
What happens to the dollar ultimately rests upon what takes precedence with investors. Recently, the strength of the U.S. seems to have taken priority. But America's deficits aren't going away, and could once again grab the attention of the financial markets.
Here's the weekly economic calendar.
CONSUMER INSTALLMENT CREDIT
Monday, Mar. 7, 3 p.m. EST
Consumers most likely racked up $5.4 billion in debt in January. That's the median estimate among economists surveyed by Action Economics. During December, consumer debt grew by $3.1 billion, after a large revision showed an increase of $2 billion for November. In September and October, outstanding consumer credit swelled by a total of $31 billion. For all of 2004 consumer credit grew by $92.4 billion, following an increase of $87.1 billion in 2003.
MEETINGS OF NOTE
Tuesday, Mar. 8, 12 p.m. EST
Federal Reserve Bank of St. Louis President William Poole speaks about the current account at the Global Interdependence Center's 2005 Global Economic Outlook Conference in West Palm Beach, Fla.
2 p.m. EST
Federal Reserve Board Governor Ben S. Bernanke talks about the U.S. economic outlook before the Executives' Club of Chicago in Chicago.
CenterPoint Energy (CNP), Tenet Healthcare (THC), Kroger Co. (KR), and more.
ICSC-UBS STORE SALES
Tuesday, Mar. 8, 7:45 a.m. EST
This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank (UBS), will update buying activity for the week ending Mar. 5. In the week ended Feb. 26, sales picked back up with a 1.5% increase, following a 0.1% slip in the previous week, and a 0.1% rise in the week ended Feb. 12.
INSTINET (INGP) REDBOOK RESEARCH STORE SALES
Tuesday, Mar. 8, 8:55 a.m. EST
This weekly measure of retail activity will report on sales for the first fiscal week of March, ending Mar. 5. For the entire month of February, retailers reported a solid 2% rise in sales compared to January. Sales for January finished 0.9% above December.
MEETINGS OF NOTE
Wednesday, Mar. 9, 10 a.m. EST
U.S. Securities and Exchange Commission Chairman William Donaldson testifies about the securities industry before the Senate Banking Committee in Washington, D.C.
1:30 p.m. EST
Federal Reserve Bank of Chicago President Michael Moskow speaks about the U.S. economy before the Investment Analysts Society of Chicago in Chicago.
Wednesday, Mar. 9, 7 a.m. EST
The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Mar. 4. In the week ended Feb. 25, the purchase index turned around, rising to 440. In the previous period, the applications index fell to 417.8, from 423.3 over the period ended Feb. 11. The latest reading of the four-week moving average was virtually unchanged at 431.4, from 431.5 during the week ended Feb. 18.
The average rate on a conventional 30-year mortgage, according to HSH Associates, climbed to 5.79%, in the week ended Feb. 25, from 5.71%.
The MBA's refi index fell to 2281.1, from 2532 during the week of Feb. 18+, and 2530.1 over the week of Feb. 11. Even so, the four-week moving average nudged up to 2443.5, from 2436.7 in the week ended Feb. 18.
Wednesday, Mar. 9, 2 p.m. EST
The Federal Reserve will release its compilation of regional economic activity, based on survey responses from each of its 12 districts. The Beige Book comes in advance of the upcoming monetary policy meeting scheduled for Tuesday, Mar. 22. The unanimous viewpoint among economists surveyed by Action Economics is that the Fed will lift rates by another 25 basis points, to 2.75%. Since January, the central bank has raised interest rates by a quarter point at each of its meetings -- 6 in all -- after lowering the fed funds rate down to 1%.
MEETINGS OF NOTE
Thursday, Mar. 10, 6:15 p.m. EST
Federal Reserve Board Chairman Alan Greenspan speaks at the Council of Foreign Relation's Annual Corporate Conference on Globalization in New York City.
8 p.m. EST
Federal Reserve Board Governor Ben S. Bernanke discusses the global savings glut and the U.S. current account at the Virginia Association of Economists in Richmond, Va.
National Semiconductor (NSM) and more.
Thursday, Mar. 10, 8:30 a.m. EST
First-time claims for jobless benefits for the week ended Mar. 4 probably held steady at 310,000. Jobless claims edged down to 310,000 in the week ended Feb. 26, after a small increase to 311,000 in the prior period, from 303,000 in the week ended Feb. 12.
The four-week moving average fell to 307,000, from 308,500 during the week ended Feb. 19, and 312,000 over the previous week. During the week of Feb. 19, continuing jobless claims held steady at 2.67 million.
WHOLESALE SALES AND INVENTORIES
Thursday, Mar. 10, 10 a.m. EST
Wholesale sales will keep improving, but at a slower clip. The consensus among economists surveyed by Action Economics is for a monthly gain of 0.6% in January. During December, sales grew by 0.9%, following a 0.8% rise in November, and a 1.6% jump in October. Compared to the same month in 2003, sales were up 13.9% in December, after a yearly pace of 14.3% in November.
Wholesaler inventories increased, but not as much as sales. In December, inventories increased by 0.4%, after a 1.2% gain in November, and a 1.1% rise over October. Because inventories failed to keep pace with sales, the inventory-to-sales ratio slipped back down to 1.14, from 1.15 in November.
The December report indicated that demand for durable goods was surprisingly strong. Among durable goods, only the metals category showed a rising inventory-to-sales ratio. The picture was not as clear cut for nondurables.
Thursday, Mar. 10, 2 p.m. EST
The federal government most likely posted a hefty deficit in February. Economists surveyed by Action Economics expect Treasury Dept.'s report to show a $95.9 billion shortfall. In January, the government tallied an $8.7 billion surplus, following a December deficit of $3.4 billion. So far, the current FY budget gap is smaller than last year. Through the first four months of FY 2005, the deficit stands at $109.2 billion vs. $131.5 billion through January of 2004.
According to the latest forecast from the Office of Management and Budget, released on Feb. 7, the budget gap for the current fiscal year will hit $426.6 billion. The earlier estimate from last year was $331.2 billion, while the actual FY 2004 deficit stood at $412.3 billion.
MEETING OF NOTE
Friday, Mar. 11, 10 a.m. EST
Federal Reserve Board Chairman Alan Greenspan talks about bank regulation via satellite to the Independent Community Bankers of America in San Antonio, Tex.
Friday, Mar. 11, 8:30 a.m. EST
The January monthly trade deficit is expected to come close to the December level. The U.S. trade deficit for goods and services is forecast to be $56 billion, after falling to $56.4 billion in December, from a record $59.3 billion.
A pickup in oil prices in February could mean some upside risk to the forecast. The price of West-Texas intermediate crude topped $50 per barrel in January. The Commerce Dept. report measures the value, not the volume, of goods or services.