The second look at fourth-quarter gross domestic product showed the economy grew at an upwardly revised 4.1% from 4% in the advanced report. That defied economists' forecast of a decline to 3.7%. All the credit can go to businesses. The revised GDP figures showed investment in equipment and inventories grew more rapidly that first reported.
So far this year, it appears that businesses haven't let up much on their investment plans. In addition, sustained demand is likely to force further inventory rebuilding. The 1.8% drop in durable goods orders in January looked pretty ugly. However, the underlying data showed a brighter outlook. Excluding the volatile transportation sector, durable goods orders would have been up 2%.
In addition, the broader factory-orders report, which includes both durable and nondurable goods, is expected to be unchanged for January. The forecast indicates that growth among nondurables, which include chemicals, plastics, and petroleum products, and accounts for 46% of all factory orders, will continue to show strong gains.
COMING SOON: JOBS?
The Institute for Supply Management's factory activity indexes should also show continued expansion. While economists see the pace of growth in the industrial sector slowing, the February forecast level of 60.5% remains a strong reading. The January activity index showed new orders were still increasing at a rapid clip, while production accelerated.
The $64,000 question is: When does higher demand finally force businesses to start hiring at full tilt? Apparently not in February: The consensus among economists surveyed by Informa Global Markets is for lukewarm job growth of 110,000, with another decline in factory payrolls.
It would appear the labor market will strengthen sooner rather than later. But businesses are trying to squeeze as much productivity growth out of existing capital and personnel as possible. Fourth-quarter productivity growth probably came in at 2.6%. While a far cry from the 9.4% growth in the third quarter, it is still a fairly good rate.
Here's the week's economic calendar.
MEETING OF NOTE
Monday, Mar. 1, 9:30 p.m. EST
Federal Reserve Board Governor Mark Olson speaks about "Key Trends and Developments in the Regulation and Supervision of Internationally Active Banking/Financial Groups" at the Institute of International Bankers' annual conference in Washington, D.C.
10:50 a.m. EST
Bank of Spain Governor and Chairman of the Basel Committee on Banking Supervision, Jaime Caruana, speaks on "Basel II, Including Home/Host Country Coordination Issues" at the annual conference of the Institute of International Bankers in Washington, D.C.
11:30 a.m. EST
William J. McDonough, Chairman of the Public Company Accounting Oversight Board, speaks on "Improving the Reliability of Financial Statements and the Convergence of U.S. and International Accounting Standards" at the annual conference of the Institute of International Bankers in Washington, D.C.
PERSONAL INCOME AND CONSUMER SPENDING
Monday, Mar. 1, 8:30 a.m. EST
Personal income in January is expected to have grown by 0.8% according to economists queried by Informa Global Markets. In December, personal income rose 0.2%, following an increase of 0.3% in November. Using the December forecast, yearly personal income growth probably accelerated up to 4.4%, from 3.8% in December.
January consumer spending on goods and services most likely improved 0.6% after growing 0.4% in December and 0.5% in November. The January forecast would put yearly consumer spending at a healthy clip of 5.3%, vs. 4.9% in December.
The December tally put personal spending in the fourth quarter up an annualized 3.2% from the previous period, and 2.7% after adjusting for inflation, the smallest gain since the third quarter of 2001. However, the slowdown wasn't surprising given that third-quarter real outlays hit an annualized 6.9%. First-quarter spending should turn in a better performance. Retail sales in January were strong, February auto sales are expected to increase, and the first batch of federal income tax returns will be arriving soon.
Monday, Mar. 1, 10 a.m. EST
The February index of industrial activity from the Institute for Supply Management most likely eased to 60.5%, say economists surveyed by Informa Global Markets. In January, the index nudged up to 63.6%, from 63.4% in December, and 61.3% in November. The expected February reading could still be associated with vigorous activity in the factory sector and the economy at large. Indeed, the January level historically corresponds to a 7.6% annualized increase in real gross domestic product, according to the ISM. Such robust growth is unlikely this quarter, but the high industrial activity levels point to further acceleration in factory output.
The underlying indexes of the factory activity index remain strong. The production component picked up to 71.1%, from 69.2% in December. New and unfilled orders are also on the rise, albeit at just slightly slower clips.
The January employment component stayed above 50% for a third consecutive month. The January level was 52.9%, from 53.5% in December. Officially, a reading above 50% indicates that manufacturers are hiring. However, the ISM states that "an Employment Index above 48 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment."
Monday, Mar. 1, 10 a.m. EST
Outlays for new buildings are forecast to have increased by 0.1% in January. December construction spending grew 0.4%, after a 0.5% increase over November. Based on the January median forecast of economists queried by Informa Global Markets, construction spending would be up 6.4% from last January. Private residential construction could come in fairly weak. Housing starts and completions were off in January, most likely the result of rough winter weather. Plus, the January blip in higher initial jobless claims was largely attributed to weather-related delays in construction projects.
If private residential construction does sag, it could pose some downside risks to the forecast. Indeed, construction of single-family homes accounts for over a third of all spending. Excluding single-family homes, total construction outlays would have been up just 1%, compared with 7% overall for 2003.
MEETING OF NOTE
Tuesday, Mar. 2
The Democratic Party presidential primary season hits the critical "Super Tuesday". California, New York, Ohio, Connecticut, Georgia, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont all hold primaries today.
Federal Reserve Board Chairman Alan Greenspan addresses the Economics Club of New York in New York City.
Federal Reserve Board Governor Ben S. Bernanke gives a speech on money, gold, and the Great Depression at Washington and Lee University in Lexington, Virginia.
Tuesday, Mar. 2
Sales of domestic and imported cars and light trucks in February probably hit an annual pace of 17.3 million vehicles, according JP Morgan Chase. In January, sales slipped to 16.1 million, from an annualized rate of 17.7 million vehicles in December, and 17 million in November. The soft January figures were blamed on harsh winter weather. Based on the February forecast, sales would be running at an annualized rate of 16.7 million for the first quarter, the same as in the fourth quarter. For all of 2003, sales stood at 16.6 million, following a total of 16.8 million for 2002.
ICSC-UBS STORE SALES
Tuesday, Mar. 2, 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 Feb. 28. In the week ended Feb. 21, seasonally-adjusted sales slipped 0.2%, following a 1.4% gain in the previous week, and a 1.8% gain in the week ended Feb. 7.
INSTINET REDBOOK RESEARCH STORE SALES
Tuesday, Mar. 2, 8:55 a.m. EST
This weekly measure of retail activity will report on sales for the fourth, and final, fiscal week of February, ended Feb. 28. During the first three weeks ended Feb. 21, store sales climbed 1% compared with the same period in January. For the entire month of January, sales were up by 0.3% compared with December. MORTGAGE APPLICATIONS
Wednesday, Mar. 3, 7 a.m. EST
The Mortgage Bankers Assn. releases its tally of mortgage applications for both home buying and refinancing for the week ending Feb. 27. During the period ended Feb. 20, the purchase index moved up to 423.5, after rising to 413.9 for the week ended Feb. 13. The latest reading of the four-week moving average through Feb. 20 eased to 420.9, from 427.9 for the week ended Feb. 13. The average rate on a conventional 30-year mortgage, according to HSH Associates, inched down to 5.71% in the week ended Feb. 20, from 5.78% over the previous period.
The refi index also increased. Over the week ended Feb. 20, the refi index hit 3361.9, after moving up to 3298.3 in the prior week, from 3099.1 during the week ended Feb. 6. The refi index four-week moving average climbed to 3252.5, from 3236.2 for the week ended Feb. 13.
ISM NON-MANUFACTURING SURVEY
Wednesday, Mar. 3, 10 a.m. EST
The Institute for Supply Management releases its February index of business activity in the mostly services, non-manufacturing sector. According to the median forecast of economists surveyed by Informa Global Markets, the February index also eased, to 61.5%, from a record 65.7% in December, but still above the 58% registered in December. While the February figure is expected to show a deceleration in business activity among non-manufacturers, a reading above 60% is still in line with hale and hearty business activity.
The new orders component showed an acceleration in orders, with the component climbing to 64.9%, from 59.5%. The backlog of orders also grew, but at a slightly slower rate in January. The December employment index stayed above 50% for a fourth consecutive survey, coming in at 53.4%, from 54% the month before.
BEIGE BOOKWednesday, Mar. 3, 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 two-day policy meeting scheduled for Mar. 16. Semi-annual testimony by Federal Reserve Board Chairman Alan Greenspan, as well as more recent speeches by the Chairman, signal little chance of a rate hike early this year. The economy is on a strong footing, but it appears that the Fed is waiting for further improvement in the labor market before they consider raising interest rates.
MEETING OF NOTE
Thursday, Mar. 4, 8:30 p.m. EST
Federal Reserve Bank of Atlanta President Jack Guynn speaks at the annual Best in Real Estate awards dinner in Atlanta.
CHAIN STORE SALES
Thursday, Mar. 4
The International Council of Shopping Centers will release its February same-store sales figures for major U.S. chain retailers. In January, receipts increased 5.8% from a year ago. The January reading was the best in over four years. In December sales posted a healthy 4% gain, following a November gain of 3.6%. Seasonal sales and holiday gift card redemptions were cited as reasons for the stellar January results. The report showed a continuing trend of solid growth among wholesale and discount stores. However, department stores turned in a strong month, with sales up 4.8%
Thursday, Mar. 4, 8:30 a.m. EST
First-time claims for jobless benefits for the week ended Feb. 28 probably eased to 342,000, according to Informa Global Markets. Jobless claims turned slightly higher, to 350,000 in the week ended Feb. 21, after falling back to 344,000 in the prior period, from 368,000 for the week ended Feb. 14. The four-week moving average inched up to 354,750, from 352,000 in the previous period.
During the week ended Feb. 7, continuing jobless fell to 3.1 million, from a downwardly revised 3.16 million. The four-week moving average of continuing claims inched down to 3.11 million, from 3.12 million over the week ended Feb. 7. In the week ended Jan. 31, the four-week moving average fell to 3.08 million, the lowest level since August of 2001.
MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS
Thursday, Mar. 4, 10 a.m. EST
Factory orders probably remained unchanged in January, according to economists surveyed by Informa Global Markets. In December, orders rebounded by 1.1%, after falling 0.9% in November. New orders for durable goods were already reported down by 1.8%.
There is some downside risk to the forecast given the poor orders data for durable goods. However, the latest durable goods report illustrates how volatile monthly figures can be. Telecommunications equipment orders were up 73.1% in January, following a 19.1% fall in December and a 46.4% plunge in November. It was a 10.4% decline in transportation orders that dragged down the headline January durable goods number. Minus the transportation sector, durable goods orders were up 2% in January.
The runup in the level of unfilled orders may have paused in January. The level of backlogged orders for durable goods slipped 0.1%. Excluding transportation, however, unfilled orders rose 0.5%. For all factory goods, backlogged orders have climbed for five straight months through December. As long as work is piling up, factories will remain busy.
PRODUCTIVITY AND COSTS
Thursday, Mar. 4, 8:30 a.m. EST
Productivity growth in the fourth quarter, measured as output per hour worked, is expected to nudge down to 2.6% from 2.7% reported in the preliminary reports. That's based on the median forecast of economists surveyed by Informa Global Markets. In the third-quarter, productivity growth increased by an astounding 9.4%, after a second-quarter increase of 6.1%. Even with the expected revision, productivity growth in 2003 probably topped 4%, following a 4.9% increase in 2002, and a 2.1% improvement in 2001.
Fourth-quarter unit labor costs probably fell 1.3%, as reported in the initial release. Over the past two years, unit labor costs have fallen in six of the past eight quarters.
Economists see productivity growth remaining closer to the fourth-quarter level than the prior two periods. That's because increased demand is expected to force businesses hand and spark some acceleration in hiring. If and when that occurs, upward pressures on unit labor costs could soon follow.
MEETING OF NOTE
Friday, Mar. 5-6
U.S. President George W. Bush hosts Mexican President Vicente Fox for a two-day visit in Crawford, Texas. Immigration will once again be among the topics discussed.
Friday, Mar. 5, 8:30 a.m. EST
Economists surveyed by Informa Global Investors were more subdued about February job gains. The February median forecast for nonfarm business payrolls calls for an increase of 110,000. The unemployment rate is expected to rise to 5.7% from 5.6% in January.
Manufacturing payrolls will continue to garner much attention. Factories are expected to have cut another 8,000 positions, after cutting 11,000 jobs in January, and trimming 16,000 positions in December. Job losses in the factory sector have been slowing down recently. A smaller monthly decline would likely be viewed as a small positive.
On a more encouraging note, the average workweek is expected to hit 33.8 hours, after rebounding to 33.7 hours in January, from 33.5 hours in December. If the average workweek continues to climb, it would be one more indicator pointing to improving job prospects. Rising hours indicates improving business activity, especially when payrolls are rising. The factory workweek also increased, to 40.9 hours, from 40.6 hours in December. Also, hourly earnings are forecast to have increased by 0.2%, vs. a 0.1% rise in January.
CONSUMER INSTALLMENT CREDIT
Friday, Mar. 5, 3 p.m. EST
Consumers most likely accumulated another $8.8 billion in debt over January. That's the consensus of economists surveyed by Informa Global Markets. Total credit outstanding increased $6.6 billion in December, following a small gain of $1.8 billion in November. Nonrevolving debt, which includes auto loans, has been growing much faster than revolving debt over the past few months. In December, nonrevolving credit grew by $4.9 billion, while revolving debt was up by $1.6 billion.