By James Mehring
All eyes and ears will be on Federal Reserve Chairman Alan Greenspan this week, as he presents his semiannual testimony on monetary policy before Congress. Economists and investors will be eager to hear what Greenspan has to say. As the central bank keeps pushing up interest rates, everyone is anxious to figure out just how much higher the Fed will go.
What the Fed does this year will depend increasingly on what the economic data suggest about the health of the economy and the prospects for inflation. This week's economic reports offer some insight into exactly that, with key January readings on retail sales, housing starts, and inflation at the producer level.
UPSWING IN SPENDING.
The Fed will also have an eye on the industrial sector, and this week's January report on industrial production will offer a glimpse into how manufacturers are doing so far in 2005. American factories turned a corner last year, as industrial output grew 4.1%. Economists surveyed by Action Economics LLC expect January output to expand by 0.3%.
There are reasons to believe factory activity will hold up well this year. A global upswing in corporate investment spending has emerged. Companies in the U.S. and abroad are expected to spend a lot of money this year. According to Blue Chip Economic Indicators, Corporate America is expected to ratchet up capital investment by 8.8% in 2005. The Feb. 10 trade report showed a big jump in exports of capital goods during December. For all of 2004, capital goods exports grew by 12.8%.
SOME BREATHING ROOM.
The weakened U.S. dollar is playing a positive role for American manufacturers as well. American goods are now cheaper in foreign-currency terms. In some instances, the dollar is providing some breathing room for price increases on American exports. On a year-ago basis, prices for capital goods exports started to inch higher as of mid-2004. The latest trend is welcome change from nearly three years of falling prices starting back in October, 2001.
Back at home, inflationary pressures remain mixed. Import prices aren't budging much for capital and consumer goods. That should keep a lid on pricing power for many items. If so, it would help limit inflationary pressures.
However, producer price figures show some underlying uptick in prices. Strip out the volatile food and energy data, and prices for finished goods rose 2.2% from a year ago in December. At the start of 2004, the yearly pace was 1%. Thus, this week's data will be important for economy watchers and the Fed in figuring out where interest rates should end up.
Here's the weekly economic calendar:
Note: The bond market will close early on Friday, Feb. 18, ahead of the Presidents Day holiday.
Monday, Feb. 14
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MEETING OF NOTE
Monday, Feb. 14, 12:30 p.m. EST
Council of Economic Advisers Chairman Gregory Mankiw gives a speech entitled "The Economic Agenda" to the National Economists Club in Washington, D.C.
Tuesday, Feb. 15
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ICSC-UBS STORE SALES
Tuesday, Feb. 15, 7:45 a.m. EST
This weekly tracking of retail sales, assembled by the International Council of Shopping Centers and UBS, will update buying activity for the week ending Feb. 12. In the week ended Feb. 5, sales rebounded with a 2.2% surge, following a 1.9% drop in the prior week, and a 0.1% gain in the week ended Jan. 22.
Tuesday, Feb. 15, 8:30 a.m. EST
Retail sales probably slipped a little in January. Economists surveyed by Action Economics LLC are forecasting a 0.4% dip for the month. In December, sales climbed 1.2%, after a 0.1% rise in November, on top of a gain of 0.8% in October. The December sales were helped by a 2.2% rise in furniture sales, as well as 1.2% gain in sales of building materials and garden equipment.
Auto sales were also a large source of strength in December, and will weigh on overall January figures. Light-vehicle sales came in at an annual pace of 16.3 million in January, after a pace of 18.3 million vehicles in December. Excluding autos, the consensus forecast is a 0.4% gain in January retail sales. In December, ex-auto retail sales advanced 0.3%, after a 0.4% gain in November.
Tuesday, Feb. 15, 8:30 a.m. EST
Inventories held by manufacturers, wholesalers, and retailers are expected to have grown by 0.2% in December. That's the median forecast of economists surveyed by Action Economics LLC. Factory inventories were already reported to have slipped by 0.1% in December, while wholesale inventories rose 0.4%. Combining wholesale and factory figures, December inventories are up 0.1% so far. Total business inventories expanded by 1% in November, and 0.4% in October.
EMPIRE STATE MANUFACTURING SURVEY
Tuesday, Feb. 15, 8:30 a.m. EST
The New York Federal Reserve Bank will release its January survey of business conditions for manufacturers in the New York Fed district. According to the median forecast of economists surveyed by Action Economics LLC, the headline manufacturing activity index probably held steady at 20. The January reading fell to 20.1, from 27.1 in December, but remained above the 19.8 level of November.
Other indexes showed a moderation in conditions. The new orders index fell to 21, from 36.1 in December. The January unfilled orders index eased to 5.7, from a level of 7.7 in the prior month.
A positive sign came in employment, where the reading for number of employees stood at 12.7, down from 15.7 in December. But the percentage of those who said they lowered payrolls was virtually unchanged. The index tracking the average workweek also increased significantly.
Expectations for the coming six months were still fairly upbeat. The January general business conditions index declined for a fourth straight month, coming in at 42.2, from 47 in the prior month. The new orders, shipments and unfilled orders indexes all edged up a little.
INSTINET REDBOOK RESEARCH STORE SALES
Tuesday, Feb. 15, 8:55 a.m. EST
This weekly measure of retail activity will report on sales for the second fiscal week of February, ending Feb. 12. Over the first week, ended Feb. 5, sales were up 0.6% compared to the same period in January. During the full month of January, sales finished 0.9% above December.
HOME BUILDERS SURVEY
Tuesday, Feb. 15, 1 p.m. EST
The National Association of Home Builders and Wells Fargo issue the monthly survey results for February. The report updates housing market conditions by measuring builders' assessments of current sales, buyer traffic through model homes, and expected demand. In January, the activity index slipped to 70, from 71 in December.
The index tracking single-family home sales stood at 77, after edging up to 78, from 77 in November, 76 in October, and 73 in September. Expectations for sales in the coming six months also posted a small decline. The January reading was 78, after hitting 80 in December, from 78 in November. The January index for prospective buyer traffic stood at 50, after climbing to 52 in December from a reading of 51 in the three prior months.
On a regional basis, the latest figures show builders were once again most confident in the West and South.
Wednesday, Feb. 16
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MEETINGS OF NOTE
Wednesday, Feb. 16, 10 a.m. EST
Federal Reserve Board Chairman Alan Greenspan gives his semiannual monetary policy testimony to the Senate Banking Committee in Washington, D.C.
10 a.m. EST U.S. Treasury Secretary John Snow talks about tax reform in Washington. D.C.
Wednesday, Feb. 16, 7 a.m. EST
The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Feb. 11. In the week ended Feb. 4, the purchase index rose to 444.6, after holding fairly steady at 440.3 in the prior period from 439 in the week of Jan. 21. The latest reading of the four-week moving average, however, moved up to 443, from 430.1 for the week ended Jan. 28.
The average rate on a conventional 30-year mortgage, according to HSH Associates, eased back to 5.73%, from 5.74% in the period ended Feb. 4.
The MBA's refi index rose to 2430.7, from 2253.9 for the week ended Jan. 28, and 1932.8 in the previous week. The four-week moving average hit 2166.5, after increasing to 1989 in the week ended Jan. 28.
NEW RESIDENTIAL CONSTRUCTION
Wednesday, Feb. 16, 8:30 a.m. EST
The housing market should carry its strong performance into the new year. Housing starts are forecast to have come in at an annual pace of 1.93 million in January, according the consensus forecast of economists surveyed by Action Economics LLC. In December, starts hit an annual rate of 2 million, after easing to 1.8 million in November, from 2.07 million in October. There may be a small downside risk to the forecast given the large snowstorm that swept over the Midwest and Northeast in mid-January.
Wednesday, Feb. 16, 9:15 a.m. EST
U.S. industrial production probably expanded by 0.3% in January. That's the consensus forecast among economists surveyed by Action Economics LLC. Over December, industrial output grew by 0.8%, following a 0.2% increase in November and a 0.8% jump in October.
The average operating rate for all industries most likely inched up to 79.3%, from 79.2% in December, and 78.6% in November. While companies are now increasing capacity, it is still at a much slower clip than the increase in demand. In December, capacity had increased by 1.2%, compared to a year ago. As long as the disparity continues, capacity utilization will soon return to its historical average of 81.1%.
MEETINGS OF NOTE
Thursday, Feb. 17, 10 a.m. EST
Federal Reserve Board Chairman Alan Greenspan follows up with his semiannual monetary policy testimony before the House Financial Services Committee in Washington, D.C.
Thursday, Feb. 17
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Thursday, Feb. 17, 8:30 a.m. EST
First-time claims for jobless benefits for the week ended Feb. 12 probably moved up to 320,000. Jobless claims dipped to 303,000 for the week ended Feb. 5, after slipping to 316,000 in the previous week, from 325,000 in the week ended Jan. 22.
The four-week moving average dropped to 315,500, from 331,500 in the week ended Jan. 29. During the week of Jan. 29, continuing jobless claims rose to 2.74 million, from to 2.69 million in the prior week.
IMPORT AND EXPORT PRICES
Thursday, Feb. 17, 8:30 a.m. EST
Import prices probably posted a moderate increase during January. The median forecast of economists surveyed by Action Economics LLC is a 0.8% increase in import prices last month. In December, overall prices plunged by 1.3%, due in large part to lower crude oil prices. In November, prices fell 0.2%, following a 1.6% jump in October.
Excluding petroleum, import prices posted a 0.5% gain in December, after a 0.9% rise in November, and a 0.1% dip in October.
Compared to the same month a year ago, overall import prices slowed to a 6.9% rate, from a yearly rate of 9.1% in November. Excluding energy, the yearly gain picked up to 3.8%, from 3.6% in November. While oil and natural gas prices exert a lot of influence on the overall price index, there is an underlying upward trend outside of petroleum products and capital goods.
November export prices probably rose by 0.2% for a second straight month. In November, export prices rose by 0.3%, after a 0.6% gain in October. Compared to a year ago, export prices were up 4.1% in December, a little slower than the yearly pace of 4.2% in November.
Export prices for agricultural commodities continue to slide, now down 5% from a year ago. Capital goods prices were up 0.7% from a year ago in December, after a 0.8% yearly increase in November. Price gains for consumer goods exports picked up to a yearly pace of 1.5%, from 1.1% in November.
Thursday, Feb. 17, 10 a.m. EST
The Conference Board's composite index of leading economic indicators most likely slipped 0.2% in January. That is the median forecast by economists surveyed by Action Economics LLC. In December, the index rose 0.2%, after a 0.3% gain in November and after five straight monthly declines. On a yearly basis, the index was up just 1% from a year ago in the final month of 2004, after peaking at 4.7% in March.
PHILADELPHIA FED SURVEY
Thursday, Feb. 17, 12 p.m. EST
The Philadelphia Federal Reserve Bank will release its February survey of business conditions for the mid-Atlantic region. According to economists queried by Action Economics LLC, the index of general business conditions probably came in at 16.5, a slight improvement from January. The January index tumbled to 13.2, the lowest reading since July of 2003. In December, the index climbed to 25.4. The indexes tracking new orders, unfilled orders, and shipments all deteriorated in January as well.
Respondents were less upbeat about the coming six months. The future business activity index fell to 25.5, from 39 in December and 47.9 in November. The latest reading of future expectations was the weakest since early 2001.
Friday, Feb. 18
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PRODUCER PRICE INDEX
Friday, Feb. 18, 8:30 a.m. EST
Producer prices for finished goods sold by U.S. businesses are expected to have increased during January. The median estimate among economists surveyed by Action Economics LLC is for a 0.3% gain. In December, prices dropped by 0.7%, due in large part to an 11.1% drop in gasoline prices and an 8.9% fall in heating oil prices.
Producer prices rose 0.5% in November and 1.7% in October. Based on the January forecast, producer prices would be 3.8% higher than a year ago, after easing to a yearly pace of 4.1% in December, from 5.1% in November.
Excluding food and energy costs, core prices probably increased 0.2%. Over December, core producer prices inched up by 0.1%, following a 0.2% gain in November. Based on the December forecast, core producer prices would edge down to 2.1% from the same period a year ago, after hitting 2.2% in December. Since reaching a yearly low of 0.7% in March of 2004, core producer prices have steadily risen.
CONSUMER SENTIMENT INDEX
Friday, Feb. 18, 9:45 a.m. EST
The University of Michigan's Survey Research Center will report to its clients its preliminary reading of consumer sentiment for February. News services will then report the index. The consensus among economists surveyed by Action Economics is for the index to remain virtually unchanged at a reading of 95.3.
There was a sharp divergence among the components, with the current conditions index rising by just over four points, to 110.9. The future expectations index fell to 85.7, from 90.9 in December. In January, the index ended up at 95.5, down slightly from the December level of 97.1, but sill above the 92.8 level of November.
Mehring is an economics editor for BusinessWeek in New York