Just how fast did the economy expand in the fourth quarter? That question will be answered this week with the first look at gross domestic product figures for the final quarter of 2003. Economists surveyed by Informa Global Markets see growth hitting 4.8%, however some economists say it's possible the economy zipped along at a pace better than 5%. That would be a strong followup to the third quarter's remarkable 8.2% increase.
Business spending, more exports, and inventory rebuilding likely took up the slack for slower consumer spending. Retail sales grew by a smaller 1.1% in the fourth quarter. However, industrial production accelerated, increasing by 1.5% in the fourth quarter, after a 0.9% gain in the previous period. The trade deficit is presently on pace to be $2 billion smaller than in the third quarter, and inventories grew 0.7%, after a 0.4% decline.
Economists feel pretty good about the current quarter. Current estimates hover from 4% to 5%. They aren't the only ones feeling optimistic. The Conference Board's index of consumer confidence is forecast to improve. Plus, the University of Michigan's consumer sentiment index for January probably remained little changed from its surprisingly upbeat preliminary reading of 103.2, up from 92.6 in December.
Consumers will also have more time to take advantage of low interest rates. The Federal Reserve isn't expected to raise rates at this week's two-day monetary policy meeting. Indeed, the Fed Funds rate is likely to stay at 1% for a while longer. That's one reason why mortgage rates have dipped again, sparking a resurgence in mortgage activity.
Fed watchers will be more focused on whether the Federal Open Market Committee tweaks its post-meeting statement. Recent releases have parsed the central bank's view on economic growth and inflation. In the past few months, the Fed has stated it plans to keep interest rates accommodative for a "considerable period." The Fed wants to maintain low rates to accelerate growth and soak up the excess capacity that's keeping inflation "quite low."
The labor market is one area that has plenty of excess capacity. With the pool of unemployed workers still fairly high, employees have little leverage, allowing businesses to keep a tight rein on wages and salaries. The median forecast from Informa Global Markets shows the employment cost index in the fourth quarter probably rose by 0.9%. However, benefits costs have been driving overall compensation costs higher, not wages.
Here's the week's economic calendar.
MEETINGS OF NOTE
Monday, Jan. 26
U.S. Treasury Under Secretary John Taylor is expected to attend the plenary meeting of Group of Seven (G7) deputy finance ministers ahead of the Feb. 6-7 G7 meeting in Boca Raton, Fla. One of the hot topics sure to be discussed will be currency movements. The plenary session will be in Brussels.
President George W. Bush meets with Poland's President Aleksander Kwasniewski. Among the issues expected to be raised are Poland's role in Iraq and the waiving of visa requirements for Poles traveling to the U.S. The meeting is scheduled to take place at the White House in Washington.
2 p.m. EST
U.S. Securities and Exchange Commission Chairman William Donaldson speaks on the U.S.-European Union regulatory relationship, sponsored by the European Policy Centre, in Brussels.
EXISTING HOME SALES
Monday, Jan. 26, 10 a.m. EST
Existing home sales during December are forecast to have inched up to an annual rate of 6.1 million, say economists surveyed by Informa Global Markets. In November, sales slowed to a pace of 6.06 million, from 6.35 million in October and a record annualized rate of 6.68 million homes in September. Existing home sales are also on track to have a record year, with sales through November tracking at 6.07 million. In 2002, sales reached 5.6 million.
This year should be strong again, historically speaking, but it isn't expected to reach 2003's level. Low mortgage rates, especially the recent dip, should help. However, interest rates are expected to drift a little higher as the economy strengthens.
ICSC-UBS STORE SALES
Tuesday, Jan. 27, 7:45 a.m. EST
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. 24. In the week ended Jan. 17, seasonally adjusted sales dropped 0.7%, following a 0.4% fall for the week ended Jan. 10, and a 0.1% slide over the period ended Jan. 3.
INSTINET REDBOOK RESEARCH STORE SALES
Tuesday, Jan. 27, 8:55 a.m. EST
This weekly measure of retail activity will report on sales for the third fiscal week of the month, ended Jan. 24. Through the second fiscal week, ended Jan. 17, sales were up 0.1% compared to the first two weeks of December. For the entire fiscal month of December, sales were off by 1% compared November.
MEETINGS OF NOTE
Tuesday, Jan. 27
The race for the Democratic Presidential nomination continues with the first-in-the-nation primary in New Hampshire.
9:00 a.m. EST
The Federal Reserve's Federal Open Market Committee begins a two-day meeting to discuss monetary policy. An announcement by the Fed will come on Wednesday around 2:15 p.m.
Economists expect the FOMC to keep the Fed Funds rate at 1%. In the statement following the Dec. 9 meeting, the Fed said, "with inflation quite low and resource use slack, the Committee believes that policy accommodation can be maintained for a considerable period." Indeed, the latest rounds of speeches by Federal Reserve Chairman Allen Greenspan and other Fed officials show little indication that the central bank has reversed its cautious outlook on low inflation.
CONSUMER CONFIDENCE INDEX
Tuesday, Jan. 27, 10 a.m. EST
Conference Board's index of consumer confidence for January is expected to have inched up to 96, according to the median forecast of economists surveyed by Informa Global Markets. In December, consumer confidence slipped to 91.3, from 92.5 in November.
There's some upside risk for the January report. The primary source for the optimistic view is the unexpectedly sharp surge in the preliminary survey of consumer sentiment on Jan. 16. The first look at sentiment hit 103.2, the highest level since November, 2000.
In addition, the December consumer confidence survey showed respondents have a gradually improving outlook about the job market for the first half of 2004. More consumers said they expect an improving labor market and higher incomes over the next six months. But there appears to be a lingering disconnect between current conditions and future expectations. Those saying a job was currently "hard to get" also rose in the December survey.
MEETING OF NOTE
Wednesday, Jan. 28, EST
U.S. President George W. Bush meets with Turkey's Prime Minister Tayyip Erdogan. It will be the Turkish Prime Minister's first official trip to the U.S., and the two leaders are expected to discuss issues involving Cyprus and Iraq. The meeting is scheduled to take place at the White House in Washington, D.C.
Wednesday, Jan. 28, 7 a.m. EST
The Mortgage Bankers Assn. releases its tally of mortgage applications for both home buying and refinancing for the week ending Jan. 23. During the period ended Jan. 16 the purchase index spiked to 501.6, from 445.9 in the previous week, and 401.3 for the week ended Jan. 2. The latest reading of the four-week moving average through Jan. 16 improved to 434.7, from 412.2, for the period ended Jan. 9. The average rate on a conventional 30-year mortgage, according to HSH Associates, dropped to 5.80% in the week ended Jan. 16, from 5.98% over the prior period.
The refi index also managed to increase, climbing to 3327.3, from 2195.7 for the week ended Jan. 9, and 1755.4 over the week ended Jan. 2. The refi index four-week moving average climbed to 2230.7, from 1875.9 for the week ended Jan. 9. Mortgage activity has picked up in January, as mortgage rates show no sign of budging in the near future.
DURABLE GOODS ORDERS
Wednesday, Jan. 28, 8:30 a.m. EST
New orders received by manufacturers of durable goods most likely increased 2% during December, say economists surveyed by Informa Global Markets. In November, durable goods orders retreated 2.5%, after growing 3.9% in October and 2.2% during September. Given the December forecast, new orders are slated to have risen by an annualized rate of 18.6% despite the November plunge. That would surpass the third quarter pace of 17.1%.
The November orders figures showed a wide breadth of sectors that retreated, but it was most likely a breather after several months of healthy increases in the summer and fall. A large part of the weakness came in the nondefense communications equipment category. Excluding the telecoms segment, orders fell just 0.5% in November.
There are continuing indications that manufacturers are seeing a broader improvement: Monthly orders of machinery rose an additional 2.1% in November on big increases in orders for construction machinery, turbines and power transmission equipment, and mining, oil, and gas field equipment.
NEW RESIDENTIAL SALES
Wednesday, Jan. 28, 10 a.m. EST
New single-family homes sold in December probably moved up a tick to an annual rate of 1.1 million units, say economists surveyed by Informa Global Markets. In November, home sales came in at an annual rate of 1.08 million, from 1.11 million in October. The December forecast would put new home sales for 2003 at a record level of 1.08 million, compared to 977,000 for all of 2002. The December forecast illustrates just how resilient the housing market remains. However, the annual pace is down nearly 8% from the August peak of 1.19 million.
Thursday, Jan. 29, 8:30 a.m. EST
First-time claims for jobless benefits for the week ended Jan. 24 held pretty steady at 344,000, say economists surveyed by Informa Global Markets. Jobless claims ticked lower, to 341,000 for the period ended Jan. 17, from a downwardly revised 342,000 for the week ended Jan. 10. The four-week moving average dropped to 344,500, the smallest level since January of 2001, from 347,750 for the week ended Jan. 10. During that week, continuing jobless moved up to 3.14 million, from a downwardly revised 3.13 million for the period ended Jan. 3. The revised 3.13 million was the lowest since August, 2001.
EMPLOYMENT COST INDEX
Thursday, Jan. 29, 8:30 a.m. EST
The cost of wages, salaries, and benefits probably increased 0.9% over the fourth quarter of 2003, say economists surveyed by Informa Global Markets. Based on the fourth-quarter forecast, compensation costs would be up 4.1% from a year ago. The employment cost index rose 1% during the third quarter, 0.9% in the second period, and 1.3% in the first quarter.
Higher benefit costs, such as health-care premiums, are far outpacing wage and salary gains. The increase in benefit costs are at levels not seen since the early nineties, hitting 6.5% on a yearly basis, from 6.3% in the second quarter.
Manufacturers are seeing a sharper rise in benefits costs than service-sector businesses. Benefits expenses for factory workers climbed by a yearly rate of 8.6% in the third period, vs. a 5.6% rise for the service producing industries.
The weak labor market has allowed employers to clamp down on wage and salary increases. In the third quarter, this category grew 2.9% from a year ago, up from the 2.7% rate in the third quarter. However, most of the strength was in the financial sector. Yearly wage and salary gains hit 7.2% for the finance, insurance, and real estate industry, up from 6.4% in the second quarter. With plenty of slack still left in the job market, businesses are likely to keep a lid on wages, especially if benefit costs can't be brought under control.
Thursday, Jan. 29, 10 a.m. EST
The Conference Board releases its December index of help-wanted ads, based on ads culled from major newspapers across the nation. In November, the index managed to climb back to 39, from 37 in each of the three previous months. The index is still below the year ago level of 40, however, it appears to have stabilized after hitting a 42-year low of 35 in May.
Over the three-month period through November, help-wanted ads improved in seven of nine U.S. regions, after falling in seven districts over the three-month period through October. New England and the East North Central region -- which includes states such as Michigan, Indiana and Illinois -- saw the sharpest improvements. Overall, 73% of the labor markets surveyed showed growing want-ad volume, compared to 37% in October.
GROSS DOMESTIC PRODUCT
Friday, Jan. 30, 8:30 a.m. EST
The advanced report on economic growth for the fourth quarter of 2003, measured by real gross domestic product, is expected to show the economy expanded by a seasonally adjusted annual rate 4.8%. That's based on the forecast of economists queried by Informa Global Markets. The economy expanded by 8.2% in the third quarter, after growing at more moderate rates of 3.1% and 2% in the second and first quarters, respectively.
The latest estimate of fourth-quarter GDP is stronger than earlier forecasts. Inventory rebuilding by businesses and a pickup in exports, likely aided by a softening dollar, probably made up for a slower pace of growth in consumer spending.
The primary economic driver for 2004 is expected to come from businesses. As companies feel more confident -- and if demand remains robust -- inventories will increase. An acceleration in capital investment is also anticipated. A bonus depreciation deduction of 50% on capital equipment purchased through this year should provide an additional, if small, incentive for some corporations to pick up investment spending.
CONSUMER SENTIMENT INDEX
Friday, Jan. 30, 9:45 a.m. EST
The University of Michigan's Survey Research Center will report to its clients its final index reading of consumer sentiment for January. News services will then report the index. Based on the median forecast of economists surveyed by Informa Global Markets, the final reading for January will be 102.2, almost unchanged from the 103.2 level posted in the preliminary survey. In December, the index slipped to 92.6, from 93.7 in November.
The fist look at consumer sentiment in January showed a surprising jump. The preliminary current conditions subindex turned in a big gain, surging to 108.9, from 97 in the prior month. If the current conditions component holds at its current level, it would be the highest in three years.
The latest readings in consumer sentiment bode well for consumer spending and could reflect an improving labor market that wasn't shown in the Labor Dept.'s December employment report. At the same time, financial conditions, such as the rallying stock market, typically plays a bigger role in the University of Michigan's survey than the Conference Board's consumer confidence report.
CHICAGO PURCHASING MANAGERS SURVEY
Friday, Jan. 30, 10 a.m. EST
The Chicago-area purchasing managers' January index of industrial activity in the Midwest probably bounced back to 61.5%, say economists queried by Informa Global Markets. In December, the Chicago index showed business activity expanded at a slightly slower pace. The index slipped to 59.2%, from 64.1% for November, but was still better than the October reading of 55%.
Production decelerated, with the component falling back to 63.4%, from 69% in November. The new orders, inventories, and unfilled orders also retreated.
Factories in the Midwest still seem cautious about hiring. The reading for employment improved to 49.6%, from 48.5% a month earlier, and 53.1% in October. In recent months the index tracking employment has been bobbing around 50%. A reading above 50% indicates that manufactures are adding workers.
By James Mehring in New York