Vital Signs for the Week of Oct. 24

On tap: Third-quarter gross domestic product and employment cost index, September durable goods orders, consumer confidence figures, and more

In the aftermath of the September hurricanes, analysts may have overreacted in assessing the damage to the economy. Economists surveyed by Action Economics believe growth achieved an annualized pace of 3.5% last quarter. In late September, the nonpartisan Congressional Budget Office projected the storms would trim economic growth in the third-quarter by between 1 and 1.5 percentage points, at an annual rate. Some private economists were trimming their growth forecasts for the quarter to around 3%.

Even when the gross domestic product (GDP) report comes out on Oct. 28, it will still be too early to make a true judgment of the economy's performance. The Bureau of Economic Analysis (BEA) makes estimates for incomplete September figures. Those last-month estimates include foreign trade, inventories, and construction spending. One thing that makes the BEA's job more complicated this quarter is the effect on foreign trade figures from port damage along the Gulf Coast.

If the economy did indeed grow at an annual rate of 3.5%, then there was no loss of momentum despite all the headwinds. The implications of such growth are positive for the labor market and fourth-quarter growth. Another upshot to this sustained momentum could be no let up in inflation concerns within the Federal Reserve.

The transmission of higher prices into wages and salaries is what the Federal Reserve fears most. The latest Beige Book report provided some scattered anecdotal evidence that shortages of skilled labor has led to limited wage pressures. A healthy economy and decent job growth would increase such instances. As long as the Fed believes there's a risk that higher energy, commodity, and transportation costs could touch off a wider and more lasting bout of inflation, it will continue its tightening cycle.

Overall, however, those higher costs have not yet translated into accelerated wage growth. The employment cost index is expected to show that Corporate America as a whole is not faced with ratcheting up wages in order to attract workers.

What's more, there appears to be some progress among businesses to put a lid on benefit expenses. It remains to be seen how sustainable the trend is and if there may be any negative impact on consumer spending if businesses can cope with higher material and benefits expenses by clamping down on employee costs rather than having to dish out higher wages. One measure of how companies are faring in this cost squeeze will be this week's bevy of third-quarter earnings reports.

Here's the weekly economic calendar.


Monday, Oct. 24, 8 a.m. EDT

Federal Reserve Board Governor Susan Schmidt Bies addresses the Bank Administration Institute conference in Orlando, Fla.


Monday, Oct. 24

Altera, Archstone-Smith Trust, Ashland, Cendant, Clear Channel Communications, Engelhard, Johnson Controls, Kimberly Clark, Merck & Co, Meredith, Nabors Industries, Pactiv, Pitney Bowes, Plum Creek Timber, Schering-Plough, Texas Instruments, and more.


Tuesday, Oct. 25, 3:30 p.m. EDT

Bank of Canada Governor David Dodge and deputy Paul Jenkins testify before the House of Commons in Ottawa.


Tuesday, Oct. 25

ACE Limited, Allied Waste Industries, Avaya, Avery Dennison, BellSouth, Burlington Northern Santa Fe, Centex, Chiron, Chubb, Coach, Computer Associates International, Coventry Health Care, DuPont, Halliburton, HCA, International Paper, Lexmark International, Lockheed Martin, Millipore, Murphy Oil, Northrop Grumman, PACCAR¸ PerkinElmer, Sherwin-Williams, Sigma-Aldrich, Southern Company, Tellabs, Temple-Inland, Stanley, Thermo Electron, United States Steel, Waters, and more.


Tuesday, Oct. 25, 7:45 a.m. EDT

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 Oct. 22. During the week ended Oct. 15, retail sales rose 0.4%, from 0.2% in the prior week and a 0.6% jump during the week of Oct. 1.


Tuesday, Oct. 25, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales through the first three fiscal weeks of October, ended Oct. 22. Through the first two weeks of Oct., sales were up 1% compared with the same period in September. For the entire month of September, sales rose 0.4%.


Tuesday, Oct. 25, 10 a.m. EDT

The Conference Board's October index of consumer confidence most likely edged up to 88.8. That's the consensus among economists surveyed by Action Economics. The September index may have reflected consumer concerns about higher energy prices and damage caused by hurricanes. The reading was 86.6 in September, after rising to 105.5 in August, from 103.6 in July. Both the current conditions and future expectations indexes plunged.

The percentage who said they expected business conditions to worsen over the next six months nearly doubled, to 19.8% in September, from 10% in August. Consumers were also less positive about the job market and personal financial conditions in the coming months.

Consumer sentiment over the next couple months is important. Labor market data for September was not as bad as expected and other figures point to a better economy than feared just a month ago. A steady return in consumer confidence to pre-hurricane levels would bode well for consumer spending.


Tuesday, Oct. 25, 10 a.m. EDT

The Richmond Federal Reserve Bank will release the October survey of business conditions in the Richmond Fed district. The region's manufacturers showed additional optimism during September. The headline shipments index improved to 8 in September, from 3 in August, and -3 in both July and June.

The shipments index increased for a second straight month, hitting 15 in September, from 8 in August, and 2 in July. The new orders index turned positive for the first time since May. The September reading was 8, after standing at -1 in August.

At the same time, the outlook among those surveyed was subdued. The shipments index fell to 10, from 23 in August. It was the lowest monthly reading since June, 2004. The backlogged orders and new orders indexes also fell back from their August levels.

Pricing power remains an issue among manufacturers, according to the Richmond Fed's survey. Current prices the manufacturers paid accelerated in September, while price received eased, signaling a further squeeze on profit margins. Expectations for the coming months showed a similar pattern.


Tuesday, Oct. 25, 10 a.m. EDT

Existing home sales in September probably slowed to an annual pace of 7.21 million. That's the median forecast from economists queried by Action Economics. The National Association of Realtors reported August sales improved to an annual pace of 7.29 million, after easing to a rate of 7.15 million in July, from 7.35 million in June. The supply of existing homes up for sale was 4.7 months, the highest level since November of 2003. However, the average inventory level over the past ten years is 5 months.


Wednesday, Oct. 26, 4 p.m. EDT

Bank of Canada Governor David Dodge and deputy Paul Jenkins testify before the Senate Banking Committee in Ottawa.


Wednesday, Oct. 26, 4 p.m. EDT

Air Products and Chemicals, Allegheny Technologies, Amerada Hess, American Power Conversion, Applied Micro Circuits, Automatic Data Processing, Bausch & Lomb, Bemis Company, Biogen Idec, Boeing, Cardinal Health, ConocoPhillips, Corning, CSX, Express Scripts, International Flavors & Fragrances, Janus Capital Group, Jones Apparel Group, Kerr-McGee, L-3 Communications Holdings, Louisiana-Pacific, LSI Logic, Lucent Technologies, Monster Worldwide, Newmont Mining, Norfolk Southern, OfficeMax, Praxair, Pulte Homes, Reynolds American, Ryder System, Sealed Air, Snap-on, Sprint Nextel, Starwood Hotels & Resorts, T. Rowe Price, WellPoint, Wm. Wrigley Jr., Xcel Energy, Zimmer, and more.


Wednesday, Oct. 26, 7 a.m. EDT

The Mortgage Bankers Association releases its numbers on mortgage applications for both home buying and refinancing for the week ending Oct. 21. The purchase index bounced back to 503.9 in the week ended Oct. 14, from 469.5 in the prior period, and 473.8 in the week ended Sept. 30. The four-week moving average edged up to 482.6, from 481.7 for the week ended Oct. 7. The average rate on a conventional 30-year fixed mortgage, according to HSH Associates, rose to 6.17% in the week ended Oct. 14 after rising to 6.13% during the week ended Oct. 7.

The MBA's refi index also rebounded, coming in at 2095.7, from 2004.9 in the week ended Oct. 7, but remained below the 2107.4 level during the week of Sept. 30. The four-week moving average dropped to 2078.7, from 2143.2 in the week ended Oct. 7 and 2191.6 in the week ended Sept. 30.


Thursday, Oct. 27, 11 a.m. EDT

Organization for Economic Cooperation and Development releases its economic survey of the United States in Paris.

12:30 p.m.

Deputy Secretary of State Robert Zoellick speaks about U.S. foreign policy at the Council of Foreign Relations in Washington, D.C.


Thursday, Oct. 27

Aetna, Alberto-Culver, Ameren Corp., Andrew, Apache, AutoNation, Ball Corp., Black & Decker, Burlington Resources, CenturyTel, Cinergy, Coca-Cola Enterprises, Compuware, Countrywide Financial, Cummins, Eastman Chemical, ExxonMobil, Federated Investors, Franklin Resources, Georgia-Pacific, Goodrich, Hilton Hotels, ITT Industries¸ Jefferson-Pilot, KLA-Tencor, Liz Claiborne, Loews, Marathon Oil, Maxim Integrated Products, MeadWestvaco, MetLife, Microsoft, NCR, Newell Rubbermaid, Phelps Dodge, Progress Energy, Public Storage, Raytheon, Simon Property Group, St. Paul Travelers, Dow Chemical, Union Pacific, UST, Verizon, Vulcan Materials, Waste Management, Weatherford International, Wendy's International, and more.


Thursday, Oct. 27, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended Oct. 22 is forecast to be 338,000, says Action Economics. Jobless claims slowed to 355,000, from 390,000 for the week ended Oct. 8, and 391,000 for the week ended Oct. 1.

The four-week moving average slipped to 376,000 in the week ended Oct. 15, after easing to 396,000 in the previous period, from 404,500 for the week of Oct. 1. Continuing jobless claims for the week ended Oct. 8 climbed to 2.89 million, from 2.86 million in the week ended Oct. 1.


Thursday, Oct. 27, 8:30 a.m. EDT

New orders for durable goods probably fell 1% in September, according to the consensus estimate from Action Economics. Orders climbed 3.4% in August, after a 5.4% plunge in July and a 1.9% gain in June.

The August rebound was broad based. The metals, machinery, computers and electronics, electrical equipment, and transportation categories were all positive in August.

The September figures will be important following a strong factory activity report from the Institute for Supply Management. The September ISM survey surprisingly jumped to 59.4%, from 53.6% in August. Given the interruptions of the hurricanes, no change in the level of new orders would be viewed as a sign of resilience among the factory sector and the economy as a whole.


Thursday, Oct. 27, 10 a.m. EDT

New single-family homes sales are expected to have remained strong in September. The consensus forecast from Action Economics calls for sales to stand at an annual rate of 1.25 million. Sales slowed to a pace of 1.24 million in August, from 1.37 million in July, and 1.3 million in June. The pace of new home sales remains historically strong and 2005 should once again be a record year.

Inventories of new homes stood at 4.7 months in August, the highest level since June of 2000. Mortgage rates are also gradually rising, which should slow the pace of sales in the coming year. In addition, the rebuilding process in areas hit by Katrina and Rita could mean further increases in the prices of homebuilding materials. The housing market is expected to remain resilient, but the industry may be peaking.


Thursday, Oct. 27, 10 a.m. EDT

The Conference Board releases its September index of help-wanted ads, based on ads gathered from major newspapers across the nation. The national index rolled back to 35, from 39 in July and 38 in June. Last August, the index stood at 37.

The percentage of markets with a rising want-ad volume plunged to 20%, from an upwardly revised 71% in July, and 51% in June. Once again, help-wanted advertising fell in seven of the nine U.S regions. In July, five of the nine U.S. regions showed gains in want ads. In June, seven of the nine U.S. regions showed a decline.


Friday, Oct. 28

Anadarko Petroleum, Archer Daniels Midland, Avon Products, Baker Hughes, Brunswick, Chevron, Constellation Energy Group, National Oilwell Varco, Peoples Energy, PSEG, and more.


Friday, Oct. 28, 8:30 a.m. EDT

The advanced report on economic growth for the third quarter of 2005, measured by real gross domestic product, is expected to show the economy expanded by an annual rate of 3.5%. That's the consensus among economists polled by Action Economics. The effects on a national level from the hurricanes probably had a small impact on third-quarter growth.

In the second quarter, the economy expanded by an annualized rate of 3.3%, after a first-quarter increase of 3.8%, and a fourth-quarter 2004 increase of 3.3%.

The latest GDP figures are likely to show a slight slowdown in consumer spending. The August trade deficit was $59 billion, however, the larger monthly deficit was driven by higher oil prices. What's more, August exports were stronger than anticipated. After adjusting for inflation, foreign trade deficits may end up being slightly less than the total in the second quarter. Such a result would translate into a small positive contribution to growth from net foreign trade.


Friday, Oct. 28, 8:30 a.m. EDT

The Labor Dept.'s employment cost index, a measure of wages, salaries, and benefits paid by businesses, probably increased 0.8% in the third quarter. That's forecast of economists queried by Action Economics. In the second quarter of 2005, employment costs climbed 0.7% for a second straight quarter.

The bulk of the labor cost increases are in the form of higher benefits expenses. In the second quarter, benefit costs rose 0.8% from the first quarter and 5.1% from the same period a year ago. Wage and salary costs increased 0.6% from the first period, and 2.4% from the second quarter of 2004.

The Federal Reserve and economists will be keeping a close eye on this data in the coming quarters. The Fed does not want higher costs for energy and commodities to push up prices for other goods, and then lead to wage pressures. However, evidence for or against such a pattern is not expected to appear in the third-quarter data.


Friday, Oct. 28, 10 a.m. EDT

The University of Michigan's Survey Research Center will report its final reading of consumer sentiment for October. The median forecast from Action Economics calls for a reading of 76, up a little from the preliminary October reading of 75.4. The final September reading was 76.9, a big decline from the August level of 89.1 and 96.5 in July.

Other important aspects of the final October report will be inflation expectations of respondents. In September, consumers ratcheted up their estimate of inflation in the coming year. Meanwhile, respondents felt less positive about their financial prospects. The sense among consumers is that prices will keep climbing, which could erode purchasing power.

By James Mehring

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