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Vital Signs: Will Growth Keep Up in the First Quarter?

On tap: Key January reports covering retail sales, industrial production, producer prices, and housing starts

Several economic reports in the upcoming week should give a clearer view of how much of the economy's strength in the fourth quarter has carried over into the first quarter. The headliners are January data on retail sales, business inventories, industrial production, and housing starts. Each will offer a take on a key trend that will help the markets to shape their impression of where the economy is headed in coming months.

For example, the government's roundup of retail sales will be the first 2007 reading on how consumer spending is holding up in the face of the housing slump. If the forecasters are right, retail receipts will show a healthy gain driven by continued strong growth in jobs and income and helped along by last quarter's drop in gasoline prices. Sales probably got a big boost from a bevy of gift-card redemptions. Consumer confidence strengthened in January, and the week will offer the first look at consumer sentiment in February. A strong January start for consumer buying would assure another solid contribution to economic growth this quarter.

Economists will also have a keen eye on business inventories, which slowed sharply in the fourth-quarter as businesses tried to shrink their overstocked items. The reductions appear to have been in the auto industry, but analysts want to know if the inventory excesses are broader than just autos. If so, further weakness in manufacturing activity could be on the way. That's why the upcoming data on industrial production will important. Output picked up late last year, and any signs of continued gains will indicate that the inventory adjustment has about run its course.

And of course, there's housing. However, getting a good read on housing activity in December and January can be tricky. Sometimes housing starts data tell you more about the weather than about new building. Housing starts picked up in December, but mild weather undoubtedly created a lot of activity that wouldn't normally have occurred. January was unusually warm at the beginning of the month, but winter's chill had set in by month's end. It might take until spring before economists get a clear reading of how the housing slump is playing out. Stay tuned.

Here's the weekly calendar, from Action Economics.

Economic Reports





Median Estimate

Last Period

Treasury Budget (billion)

Monday, Feb. 12

2 p.m.




Trade Balance (billion)

Tuesday, Feb. 13

8:30 a.m.




Retail Sales

Wednesday, Feb. 14

8:30 a.m.




Retail Sales (ex-auto)

Wednesday, Feb. 14

8:30 a.m.




Business Inventories

Wednesday, Feb. 14

10 a.m.




Empire State Index

Thursday, Feb. 15

8:30 a.m.




Export Price Index

Thursday, Feb. 15

8:30 a.m.




Import Price Index

Thursday, Feb. 15

8:30 a.m.




Industrial Production

Thursday, Feb. 15

9:15 a.m.




Capacity Utilization

Thursday, Feb. 15

9:15 a.m.




Philadelphia Fed Survey

Thursday, Feb. 15

12 p.m.





Friday, Feb. 16

8:30 a.m.




PPI (ex-food & energy)

Friday, Feb. 16

8:30 a.m.




Housing Starts (million, annual rate)

Friday, Feb. 16

8:30 a.m.




University of Michigan Consumer Sentiment Index (final)

Friday, Feb. 16

10 a.m.




FEDERAL BUDGET - Monday, Feb. 12, 2 p.m. EST

The federal government is expected to post a surplus of $28 billion for January, 2007. In January of 2006, the federal government ran a $21 billion surplus.

Through the first three months of fiscal year 2007, the deficit stands at $80.4 billion, a sizeable improvement from the $119.4 tally over the same period in fiscal year 2006. The smaller gap continues to be an income driven phenomena, as tax receipts from businesses and individuals are still growing at a good clip.

ICSC-UBS STORE SALES - Tuesday, Feb. 13, 7:45 a.m. EST

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the period ending Feb. 10. Weekly sales for the period ended Feb. 3 were the strongest of the year, up 1.3%. Sales fell 0.9% during the week ended Jan. 27. The increase from a year ago, however, slowed to 4.3%, from 4.9% in the prior week.

INTERNATIONAL TRADE - Tuesday, Feb. 13, 8:30 a.m. EST

The U.S. trade deficit of goods and services probably widened a little in December. The November trade gap narrowed to $58.2 billion, the second straight monthly trade gap below $60 billion.

November export gains outpaced the rise in imports. Capital goods exports led the way, although most of the rise came in civilian aircraft. Decent gains were registered in automotive vehicles and consumer goods. A large drop in imports of industrial supplies, particularly copper and natural gas, largely offset increases in consumer and capital goods. Further easing in energy prices during December should limit import gains.

The Bureau of Economic Analysis penciled in a December goods deficit of $66 billion for its advanced fourth-quarter gross domestic product estimate. The November goods deficit was $64.7 billion, while the October tally was $65 billion. A smaller than forecast December goods trade gap would have a positive effect on revised fourth-quarter GDP growth.

JOHNSON REDBOOK INDEX - Tuesday, Feb. 13, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the first fiscal week of February, ended Feb. 10. For the full month of January, sales were up 1.7% from December. Sales in December were up 1.7% compared to November.


Wednesday, Feb. 14, 10 a.m. EST - Federal Reserve Board Chairman Ben Bernanke begins a two-day testimony on the Fed's semi-annual Monetary Policy Report to Congress. Today's presentation will be before the Senate Banking Committee.

MORTGAGE APPLICATIONS - Wednesday, Feb. 14, 7 a.m. EST

The Mortgage Bankers Association issues its weekly mortgage application volume data for home buying and refinancing activity during the week ending Feb. 9. In the latest period, the purchase index edged down to 404.7, from 408 during the week ended Jan. 26. The refi index also rose slightly, to 1943.4, from 1940.2 in the week ended Jan. 26.

The four-week moving average for the purchase index slipped to 413.8, from 430.8 over the week ended Jan. 26. The four-week average for the refi index improved to 1944.6, from 1939.7.

Mortgage rates gave some ground. The average 30-year fixed-rate mortgage sttod at 6.23%, from 6.29% in the week ended Jan. 26.

RETAIL SALES - Wednesday, Feb. 14, 8:30 a.m. EST

Retail sales growth probably slowed a little. There is likely some upside risk to the January forecast, however, due to the increasing popularity of gift cards. In December, sales turned in a strong 0.9% rise, after a November rise of 0.6%. December sales were particularly robust among electronics and appliance stores, where sales rose 3%. Clothing sales managed a decent gain, after falling in both November and October, while auto sales improved slightly as well.

Sales excluding light vehicles are forecast to be a little better than the overall tally. January light vehicle sales stood at an annual pace of 17 million, from 16.7 million in December.

BUSINESS INVENTORIES - Wednesday, Feb. 14, 10 a.m. EST

Inventories most likely rose at a modest pace in December. Stockpiles of unsold goods held by retailers, wholesalers, and manufacturers increased by 0.4% in November, after a 0.2% gain in October. The yearly gain was 6.9% in November, slightly slower than the 7.1% increase in September.

The Bureau of Labor Statistics has penciled in a drag on fourth-quarter gross domestic product from slower inventory growth of 0.7%. The December numbers may change this figure and should also provide some idea of how far along the inventory adjustment is entering 2007.


Thursday, Feb. 15, 9 a.m. EST - Federal Reserve Bank of St. Louis President William Poole will speak at a meeting of the Chartered Financial Analysts in Omaha, Neb.

Thursday, Feb. 15, 10 a.m. EST - Federal Reserve Board Chairman Ben Bernanke concludes a two-day testimony on the Fed's semi-annual Monetary Policy Report to Congress. Today's presentation will be before the House Financial Services Committee.

JOBLESS CLAIMS - Thursday, Feb. 15, 8:30 a.m. EST

Jobless claims rose slightly in the week ended Feb. 3, to 311,000. In the prior week, claims were revised up a tick to 308,000, from the originally reported 307,000. The four-week moving average edged up to 308,250, from 305,000 in the week ended Jan. 27. Continuing jobless claims for the week ended Jan. 27 fell to 2.49 million, from 2.54 million in the week ended Jan. 20.

IMPORT AND EXPORT PRICES - Thursday, Feb. 15, 8:30 a.m. EST

Import prices are forecast to have plunged in January, due in part to energy prices. Prices rose 1.1% in December, following a gain of 0.5% in November. Outside of petroleum products, import prices rose 0.4% in December and 0.9% in November. A softer dollar has translated into a gradual increase in prices for imported goods. Capital goods prices were up 0.4% from a year ago after falling during most of 2006. Prices for consumer goods were up by a yearly pace of 1.2% in December, the biggest rise since September of 2005.

The other side of a falling dollar are rising export prices. In January, export prices probably edged higher after a 0.7% rise in December, and 0.4% in November. Export prices among agricultural commodities grew rapidly in both December and November. But a weaker dollar and resilient economic growth abroad appears to be leading to a gradual upturn in export prices of capital and consumer goods. Capital goods prices were up 1.2% from a year ago, while consumer goods prices rose 2.1%.


The New York Federal Reserve Bank's February survey of manufacturers is forecast to improve a little, after hitting a nineteen month low of 9.1 in January. The December reading was 22.2. The January results for new orders, shipments, and employment mellowed. The unfilled orders index improved, but still lingered in negative territory. A negative result means an overall decline in order backlogs.

Expectations for the coming six months eased, as the general business conditions index fell to 32.5, from 41.9 in December. Even so, the new orders, shipments, and unfilled orders indexes deteriorated.

INDUSTRIAL PRODUCTION - Thursday, Feb. 15, 9:15 a.m. EST

U.S. industrial output probably held steady in January. That's the consensus among economists queried by Action Economics. Production grew by 0.4% in December, driven by a resurgence in manufacturing activity. Factory output rose 0.7% in the final month of 2006.

Within the manufacturing arena, business equipment output picked up the pace. The December gain was 1.6%, after a 0.9% rise in November, and 0.1% increase in October. One very encouraging sign is that industrial business equipment is regaining some momentum. The rise in business equipment production implies that business investment is improving. Outside of manufacturing, milder weather caused utility output to plunge 2.6% in December.

The capacity utilization probably edged a little lower. The December rate was 81.8%, up from 81.6% in November. In manufacturing, the utilization rate rose to 80.4% in December, from 80% in November.

PHILADELPHIA FED SURVEY - Thursday, Feb. 15, 12 p.m. EST

The Philadelphia Federal Reserve Bank's February factory activity index for the mid-Atlantic region probably gave back some of the gain in January. The January reading was 8.3, from a revised December reading of -2.3. The yearly index revisions by the Philly Fed revealed a slightly less pessimistic picture for the second half of the year. After originally posing negative readings the September, October indexes are now positive. There were upward revisions to final four months.

The new orders index edged up to 1.3, from -0.9 in December. A positive reading means that more respondents cited a rise in orders than those who reported a drop. The shipments index also grew, while the unfilled orders reading tumbled to -18.6, from -5.5 in December. The result implies a smaller backlog of orders left to keep manufacturers busy.

Manufacturers around the region were more optimistic about the coming six months. The index of general business activity hit 22.4 in January, the best result since April of 2006. The December result was 5.4. The new orders and shipments indexes rebounded to an even stronger level.

HOME BUILDERS SURVEY - Thursday, Feb. 15, 1 p.m. EST

The National Association of Home Builders and Wells Fargo bank issues the February Housing Market Index. The report measures housing market conditions by surveying builders' on current sales, buyer traffic through model homes, and expectations of sales in the coming six months. Further evidence of a stabilizing housing market emerged from the January survey results. The overall reading was 35, the strongest reading since July of 2006. The December and November readings were 33. A reading below 50 indicates that more builders view conditions as poor than good.

The index tracking actual sales improved to 36, after coming in at 33 in both December and November. Buyer traffic rebounded a little in January, with a reading of 26, after easing to 23 in December, from 26 in November. The expectations index for sales held at 49 for a second straight month.


Housing starts probably stayed pretty steady in January. Housing starts rose to an annual pace of 1.64 million in December, from 1.57 million in November, and 1.48 million in October. Despite the upward trend in the fourth quarter, starts were down by an annualized rate of 30.7% from the prior quarter. For the year, starts were down 12.3% from 2005.

Housing permits also moved up some in December, to a rate of 1.6 million. In November, authorizations slowed to an annual rate of 1.51 million, from 1.55 million in October. Authorizations in 2006 were down 15% from 2005.

Even though activity has cooled off dramatically, home builders are likely to face continued pressure to lower prices and offer incentives to move unsold homes. Housing completions in December were up 0.4% from November, but the yearly tally stood 3% above completions in 2005. That means plenty of new homes are still being placed on the market.

PRODUCER PRICE INDEX - Friday, Feb. 16, 8:30 a.m. EST

Producer prices probably fell in January. The December index rose 0.9% in the prior month and 2% in November. The recent increases were largely energy driven. Energy prices grew 2.5% in December, after jumping 6% in November.

Excluding food and energy, the index for finished goods rose 0.2% in December, following a 1.3% rise in November. Economists are forecasting a small gain in core producer prices for December.

The yearly pace of producer prices accelerated in December, to 1.1%. The November increase was 0.9%, after a 1.6% decline in October. Excluding food and energy,

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