Vital Signs: Sit Back and Relax

With the economy slowing as expected, the Fed will probably keep rates steady Wednesday. Also on tap: third-quarter gross domestic product and new and existing home sales

It would appear that the economy is progressing just as the Federal Reserve had expected. Economists at the central bank have forecast a deceleration in economic growth over the second half of the year. This week's release of third-quarter economic growth figures is expected to show an annualized rise of just 2.2%, vs. 2.6% in the second quarter. It would appear Fed Chairman Ben Bernanke can sit back and relax at this week's monetary policy meeting. Indeed, economists expect the Fed will keep rates at 5.25% through the remainder of the year.

However, other data coming out this week should reinforce recent signs that economic growth is picking up this quarter. There appears to be some early signs that housing is close to hitting bottom. Sales of new homes are expected to edge a little higher after a small gain in August. Builders have taken drastic measures to move homes and trim inventories. That's one reason the National Association of Home Builders' monthly survey rose for the first time all year. Residential construction will certainly weigh on economic growth this quarter, but the negative impact should be smaller than last quarter.

Housing and autos have affected manufacturing output lately, but order books continue to look strong. The September data are forecast to show some improvement in orders for durable goods. The October Philly Fed manufacturing survey revealed a rebound in the orders index and the New York Fed's survey showed orders were still rising at a solid, albeit slightly slower, pace.

Consumers are also feeling better than they had just a couple months ago. The final October consumer sentiment result is expected to show no reversal in the preliminary reading which registered a large gain. What's more, consumers appear to be taking the money saved from lower gasoline prices and spending it at stores. Weekly chain-store sales are pointing to a solid October.

A stronger fourth-quarter is unlikely to prompt any more moves by the Fed this year. But it would be a real sign that the economy is in better shape than previously thought.

Here's the weekly economic calendar, from Action Economics.

Economic Reports
Report Date Time For Median Estimate Last Period
Existing Home Sales (million, annual rate) Wednesday, Oct. 25 10:00 a.m. September 6.25 6.30
Durable Goods Orders Thursday, Oct. 26 8:30 a.m. September 1.0% -0.5%
New Home Sales (million, annual rate) Thursday, Oct. 26 10:00 a.m. September 1.06 1.05
Gross Domestic Product (advanced) Friday, Oct. 27 8:30 a.m. Q3 2.2% 2.6%
GDP Chain Price Index (advanced) Friday, Oct. 27 8:30 a.m. Q3 3.0% 3.3%
University of Michigan Consumer Sentiment Index (final) Friday, Oct. 27 10:00 a.m. October 92.3 92.3

MEETING OF NOTE

Tuesday, Oct. 24, 9 a.m. EDT

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, Oct. 25 at 2:15 p.m. Every economist queried by Action Economics is forecasting the central bank will hold the federal funds rate at 5.25%.

ICSC-UBS STORE SALES

Tuesday, Oct. 24, 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. 21. Sales grew 0.6% in the week ended Oct. 14, after a 0.5% gain in the week ended Oct. 7. Sales for the week improved to 3.9% above the year ago level, from 3.7% in the week ended Oct. 7. Store sales are getting a boost from lower gasoline prices.

JOHNSON REDBOOK INDEX

Tuesday, Oct. 24, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the third fiscal week of October, ended Oct. 21. During the first two weeks, ending Oct. 14, sales were up 1.43% from the same period in September. For the month of September, sales were unchanged from August.

RICHMOND FED SURVEY

Tuesday, Oct. 24, 10 a.m. EDT

The Richmond Federal Reserve Bank issues its October survey of business conditions within the district. The region's manufacturers were slightly more optimistic in September.

The manufacturing index rose to 9, from 3 in August, and 12 in July. The shipments and new orders indexes improved a bit in September. The index tracking unfilled orders edged up but remained in negative territory. A negative reading means more respondents than not reported a decline in order backlogs. The employment and average workweek indexes deteriorated slightly, although it appears that wage gains accelerated.

Looking ahead to the next six months, manufacturers were feeling fairly upbeat. The shipments and new orders indexes both posted double-digit increases. In September, the new orders index was 31, up from 5 in August. The new orders measure stood at 25, from 6 in the prior month. Measures of the labor market and capital expenditures were better.

MEETING OF NOTE

Wednesday, Oct. 25, 9 a.m. EDT

The Federal Reserve meets for a second day to discuss monetary policy. An announcement by the Fed on its fed funds rate will come around 2:15 p.m. Economists polled by Action Economics unanimously believe the central bank will once again keep the federal funds rate at 5.25%.

Recent economic reports would indicate that the Fed can stay on the sidelines for a while longer if it wants. The September consumer price index showed a deceleration in inflation due to lower gasoline prices. At the same time, cheaper gas is freeing up money for consumers to spend elsewhere, limiting the effects of the housing recession.

MORTGAGE APPLICATIONS

Wednesday, Oct. 25, 7 a.m. EDT

The Mortgage Bankers Association releases its numbers on mortgage application volume for both home buying and refinancing for the week ending Oct. 20. The purchase index held fairly steady at 384.7, from 383.3, in the week ended Oct. 6. The refi index dropped to 1758.2. from 1857 for the week ended Oct. 6.

The slide in refinancing activity was due in part to higher mortgage rates. The average 30-year fixed-rate mortgage rose to 6.33% for the period ended Oct. 13, from 6.27% in the prior week. So far during the second half of the year, lower mortgage rates have prompted increased volume in refinancing activity.

The four-week moving average for the purchase index pulled back to 387.1, from 390.4. At the same time, the four-week average for the refi index edged up to 1815.9, from 1813.5.

EXISTING HOME SALES

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

The market for existing homes probably softened a little more in September. Back in August, the annual pace of sales was 6.3 million, a slight deceleration from the July pace of 6.33 million. Sales of existing single-family homes and condos declined 12.6%. Through the first eight months of the year, sales fell 6.9% compared to the same period in 2005.

The sharpest decline in single-family homes was in the West, where the yearly decline was 22.8% in August, from 18% in July. The supply of homes available for sale kept rising in August, reaching 7.5 months or 3.92 million homes.

The increase in inventory is placing pressure on home prices. Compared to a year ago, the price of existing homes was down 1.7%. That's the first decline in prices on a year ago basis since 1995 and the largest since late 1990.

MEETINGS OF NOTE

Thursday, Oct. 26, 9 a.m. EDT

Federal Reserve Bank of New York President Timothy Geithner talks about the Japanese economy at a Center on Japanese Economy and Business conference entitled "Japan's Economic Future: Policy, Politics, and Producers" at the Columbia Business School Center in New York City.

12:20 p.m. EDT

Federal Reserve Board Governor Randall Kroszner speaks at a banking regulation conference in Washington, D.C.

4:10 p.m. EDT

Federal Reserve Bank of Minneapolis President Gary Stern and Jaime Caruana, head of the Internationl Monetary Fund's monetary and capital markets department, take part in a panel discussion entitled "The Political Economy of Competition Policy and Bank Regulation" at a banking regulation conference in Washington, D.C. held jointly by the Journal of Financial Intermediation and the World Bank.

JOBLESS CLAIMS

Thursday, Oct. 26, 8:30 a.m. EDT

Jobless claims tumbled back below the 300,000 level, to 299,000 for the week ended Oct. 14. Claims were revised up a little, to 309,000 in the week ended Oct. 7. The four-week moving average cooled to 307,750 from 313,500 in the week ended Oct. 7. Continuing jobless claims for the week ended Oct. 7 moved up to 2.45 million, from a downwardly revised level of 2.43 million.

DURABLE GOODS ORDERS

Thursday, Oct. 26, 8:30 a.m. EDT

New orders for durable goods are expected to have improved in September. Orders in August held at the same level as July. However, orders in key areas such as computers and machinery were down in August.

These declines were canceled out in part by a 78% surge in orders for boats and ships, as well as 2.7% rise in fabricated metal products. Based on the forecast gain for September, orders for the third quarter were down slightly from the previous quarter.

Measuring the strength of business investment can be done by looking at non-defense related orders excluding civilian aircraft. This measure of capital goods orders posted a 0.4% gain in August, following a 0.6% gain in July. Capital goods orders look stronger this quarter vs. the second period. Through the first two months of the third quarter, orders grew at an annualized pace of 7.6%, from a pace of 3.7% in the prior quarter.

NEW RESIDENTIAL SALES

Thursday, Oct. 26, 10 a.m. EDT

New single-family homes sales are forecast to have improved slightly for a second straight month. The pace of sales rose to an annual rate of 1.05 million in August, from 1.01 million in July, but still fell short of the 1.09 million unit pace of June. Sales were off 17.4% from a year ago in August, after a 26.4% yearly drop in July.

The drop in sales over the past year has weighed on prices. In order to move vacant homes, builders have cut prices and included incentives. Compared to a last August, the median price for a new single-family home was down 1.3%.

The housing starts report showed a rise in new homes completed, which could boost inventories of unsold homes for September. In August, inventories eased to 6.6 months, or 568,000 homes. The supply of unsold homes had hit a seven month supply in July.

HELP-WANTED INDEX

Thursday, Oct. 26, 10 a.m. EDT

The Conference Board releases its September index of help-wanted ads, based on ads culled from major newspapers across the nation. The main index edged down to 31 in August, from 32 in July, and 34 in June.

The percentage of markets with a rising want-ad volume fell to 25%, from 43% in July. Once again, help-wanted ads fell during the three-month period through August in eight out of nine U.S. regions.

The Conference Board's new online job ads index was a little softer in September. The number of online jobs per 100 persons in the U.S. labor force eased to 1.62, after jumping to 1.71 in August, from 1.51 in July.

GROSS DOMESTIC PRODUCT

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

The economy probably sputtered again in the third quarter. The initial look at economic growth for the period is expected to show an annualized rise of 2.2%. In the second quarter, the economy grew at an annual pace of 2.6%.

The drop in housing construction will weigh heavily on the third-quarter tally. Through September, residential construction outlays are down at an annualized pace of 15.4% for the third quarter, after registering an 8.5% decline in the second quarter.

The surprisingly large August trade deficit means trade will be a bigger drag on growth than economists had earlier expected. At the same time, consumer outlays and business spending on equipment and software should look better after a soft second quarter.

CONSUMER SENTIMENT INDEX

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

The University of Michigan's Survey Research Center will report its final reading of consumer sentiment for October. Economists see the final reading holding at the preliminary level of 92.3.

The first pass at consumer sentiment in October was markedly improved, hitting 92.3, from 85.4 in September. Both the current economic conditions and consumer expectations indexes improved. The future expectations index at 83.4 is the highest since July, 2005. Lower gasoline prices and a rallying stock market have underpinned the recent rebound in consumer confidence.

Earnings Calendar
Day Companies
Monday American Express, Amgen, AT&T, First Data, Ford Motor, Halliburton, Hasbro, Kimberly Clark, Pactiv, Pitney Bowes, Plum Creek Timber, Rockwell Automation, Texas Instruments, Weatherford International, Xerox
Tuesday ACE Limited, Aflac, Altria Group, Amazon.com, Ameriprise Financial, Archstone-Smith Trust, Avaya, Avery Dennison, BellSouth, Boston Properties, Burlington Northern Santa Fe, Centex, Chicago Mercantile Holdings, Coach, Cooper Industries, Countrywide Financial, Dover, DuPont, Express Scripts, Fiserv, Health Management Associates, Hercules, KLA-Tencor, Laboratory Corporation of America, Legg Mason, Lexmark International, Louisiana-Pacific, Lucent Technologies, Murphy Oil, Nabors Industries, QLogic, Smith International, Stanley Works, Tellabs, Temple-Inland, Waters, Whirlpool, XL Capital
Wednesday Air Products and Chemicals, Allegheny Technologies, Ambac Financial Group, Anheuser-Busch, Bemis, Boeing, ConocoPhillips, Convergys, Embarq, Estée Lauder, FirstEnergy, General Motors, Harrah's Entertainment, Hess, Jones Apparel Group, LSI Logic, Meredith, Monster Worldwide, Moody's, Norfolk Southern, Pulte Homes, RadioShack, Reynolds American, Ryder System, Sealed Air, Symantec, Thermo Electron, Unisys, Waste Management, WellPoint, Weyerhaeuser, Zimmer Holdings
Thursday Aetna, Alberto-Culver, Allegheny Energy, Apache, AutoNation, Ball, Black & Decker, Chubb, Coca-Cola Enterprises, Comcast, Compuware, CONSOL Energy, Dow Chemical, Eastman Chemical, Federated Investors, Franklin Resources, Genworth Financial, Goodrich, Hartford Financial Services, Janus Capital Group, Kellogg, L-3 Communications Holdings, Manor Care, MBIA, MedImmune, Microsoft, NCR, Newell Rubbermaid, PerkinElmer, ProLogis Trust, Raytheon, Sigma-Aldrich, Sprint Nextel, St. Paul Travelers, Starwood Hotels & Resorts, Sun Microsystems, UST, Wendy's International, Xcel Energy
Friday Alltel, Avon Products, Baker Hughes, Brunswick, Cardinal Health, Chevron, Constellation Energy Group, Coventry Health Care, Exelon, Ingersoll-Rand, National Oilwell Varco, TECO Energy
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