Vital Signs for the Week of Feb. 23

On tap: February surveys on consumer sentiment, January new orders figures for durable goods, home-sales data, and more

Could the disappointing labor market now be affecting consumer confidence? For several months, job growth has fallen far short of economists' forecasts, yet consumer confidence continued to rise. However, earlier this month, the University of Michigan's consumer sentiment for early February dropped sharply. After hitting a three-year high of 103.8 in January, the index fell back to 93.1, close to its December level. The jobs market was blamed for the retreat, as was bad weather.

It will be interesting to see where the Conference Board's February index ends up. The consumer confidence survey puts more emphasis on consumers' perception of the labor market than the University of Michigan's index. Over the past couple of months, the Conference Board report has shown a gradual improvement in the outlook for the labor market.

Respondents saying they thought more jobs would be available over the next six months reached 22.2%, from 21.6% in December. Meanwhile those who thought that fewer jobs would be available in the coming months fell to 14.9%, from 16.9% in the previous month. The February Conference Board survey results could show whether consumers have changed their mind on the job market.

If there's any reversal in consumer sentiment about jobs, however, it's unlikely to hurt consumer spending. Indeed, weekly retail sales data have been getting healthier over the past few weeks. In addition, JP Morgan Chase sees vehicle sales rebounding in February after a weak January.

With consumer demand still strong and businesses beginning to ramp up investment plans, it would appear that American companies will have to add workers at a faster clip sooner rather than later. Durable goods orders are expected to rise by 1.5% in February, according to economists surveyed by Informa Global Markets. Orders have already posted annualized double-digit gains in the past two quarters. Even though January factory output was up 0.3%, gains were posted almost across the board. Increasing orders, slimmer inventories, and a growing level of unfilled orders should lead to busier factories and, hopefully, hiring in even in the long ailing factory sector.

Jobs seem to be the missing piece in consumer confidence. If and when the monthly payrolls begin to grow by levels at or above 150,000, sentiment should resume its upward trend.

Here's the week's economic calendar.


Tuesday, Feb. 24, 9 a.m. EST

Federal Reserve Bank of Boston President Cathy Minehan speaks at a symposium on personal data in Boston.

9:20 a.m. EST

Bank of Spain President and Basel Committee on Banking Supervision Chairman Jaime Caruna speaks at the fifth annual Global Association of Risk Professionals risk management convention in New York City.

10 a.m. EST

Federal Reserve Board Chairman Alan Greenspan testifies before the Senate Banking Committee on government sponsored enterprises, such as Fannie Mae and Freddie Mac, in Washington, D.C.


Tuesday, Feb. 24, 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. 21. In the week ended Feb. 14, seasonally adjusted sales showed further strength, climbing another 1.4%, after a 1.8% gain in the week ended Feb. 7.


Tuesday, Feb. 24, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the third fiscal week of February, ending Feb. 21. During the first two weeks ended Feb. 14, store sales were up a solid 0.8% compared to the same period in January. For the entire fiscal month of January, sales were up by 0.3% compared to December.


Tuesday, Feb. 24, 10 a.m. EST

Conference Board's index of consumer confidence for February is expected to have retreated to 89.5, according to the median forecast of economists surveyed by Informa Global Markets. In January, consumer confidence jumped to 96.8, its highest level since July, 2002, from 91.7 in December. In recent months, both the future expectations and current conditions indexes have shown marked improvement.


Wednesday, Feb. 25, 9 a.m. EST

Federal Reserve Board Governor Susan Schmidt Bies gives the keynote address at the fifth annual Global Association of Risk Professionals risk management convention in New York City.

10 a.m. EST

Federal Reserve Board Chairman Alan Greenspan testifies before the House Budget Committee about U.S. economic policy in Washington, D.C.

12 p.m. EST

Federal Reserve Bank of St. Louis President William Poole discusses monetary policy rules at a Charlotte Economics Club luncheon in Charlotte, N.C.

6:30 p.m. EST

Bundesbank Vice-President Juergen Stark speaks on "Economic Perspectives in the Euro Area and Germany" at a Money Marketeers of New York University dinner meeting in New York City.

7:00 p.m. EST

Federal Reserve Bank of Cleveland President Sandra Pianalto discusses the U.S. economy at the Wayne College Community Forum in Orrville, Ohio.


Wednesday, Feb. 18, 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. 20. During the period ended Feb. 13 the purchase index moved up to 413.9, following three straight weeks of declines. The latest reading of the four-week moving average through Feb. 13 eased to 420, from 427.9 for the week ended Feb. 6. The average rate on a conventional 30-year mortgage, according to HSH Assoc., inched down to 5.78% in the week ended Feb. 13, from 5.84% over the previous period.

The refi index also increased. Over the week ended Feb. 13, the refi index hit 3298.3, after slipping to 3099.1 in the prior week, from 3250.6 during the week ended Jan. 30. The refi index four-week moving average declined to 3216, from 3243.4 for the week ended Feb. 6.


Wednesday, Feb. 25, 10 a.m. EST

Existing home sales during January probably eased to an annual rate of 6.45 million, say economists surveyed by Informa Global Markets. In December, sales climbed to a pace of 6.47 million, from 6.05 million in November and an annualized rate of 6.35 million homes in October.

There is some risk the January tally could come in below the forecasted level due to bad winter weather. The National Associations of Home Builders' February housing market index reported softer demand. The NAHB said home builders reported a drop-off in prospective buyers due to inclement weather. However, if interest rates remain low, sales should pick up during the spring as the weather improves.


Thursday, Feb. 26, 12 p.m. EST

European Central Bank Executive Board Member Tommaso Padoa-Schioppa speaks about "Building on the Euro's Success," at an Institute for International Economics conference on the euro in Washington, D.C.

5 p.m. EST

Federal Reserve Board Governor Ben Bernanke speaks about "What We Have Learned from the Euro at Five?" at an Institute for International Economics conference on the euro in Washington, D.C.


Thursday, Feb. 26, 8:30 a.m. EST

First-time claims for jobless benefits for the week ending Feb. 21 probably stayed pretty steady at 345,000, according to Informa Global Markets. Jobless claims fell back to 344,000, after an unexpected jump to 368,000 in the week ended Feb. 7. The four-week moving average inched up to 352,000, from 351,750 in the previous period.

During the week ended Feb. 7, continuing jobless were up slightly, to 3.19 million, from 3.08 million. The four-week moving average of continuing claims came in at 3.12 million for the period ended Feb. 7. In the week ended Jan. 31, the four-week moving average fell to 3.08 million, the lowest level since August, 2001. The unemployment rate, based on the number of persons receiving unemployment benefits as a share of the total workforce eligible for benefits, ticked up to 2.5%, from 2.4% in the previous period.


Thursday, Feb. 26, 8:30 a.m. EST

New orders received by manufacturers of durable goods are forecast to have increased 1.5% during January, according to economists queried by Informa Global Markets. In December, durable goods orders grew 0.3% following a 2.4% drop in November, and a 3.9% jump in October. Even with the November slide, new orders increased by an annualized rate of 16.2%. That's just a little below the third quarter pace of 17.1%.

The December orders figures were mixed. A large part of the weakness came in the nondefense communications equipment category. After sliding 48.5% in November, new orders for telecom equipment fell another 21.4% in December. Excluding the nondefense telecom segment, overall durable goods orders would have been up by 0.8% in the final month of 2003. Orders for computers also slipped a little for a second consecutive month. On the plus side, orders for machinery continued to climb.


Thursday, Feb. 26, 10 a.m. EST

New single-family homes sold in January most likely eased to an annual rate of 1.04 million units, say economists surveyed by Informa Global Markets. In December, home sales came in at an annual rate of 1.06 million, from 1.12 million in November. Like all other housing data for the month of January, new home sales are vulnerable to a weather related drop-off.


Thursday, Feb. 26, 10 a.m. EST

The Conference Board releases its January index of help-wanted ads, based on ads culled from major newspapers across the nation. In December, the index slipped back to 38, from 39 in November, and 37 in October. The index stands equal to its reading a year ago.

Over the three month period through December, help-wanted ads improved in seven of nine U.S. regions for a second straight time. New England and the East North Central region -- which includes states such as Michigan, Indiana, and Illinois -- once again saw the sharpest improvements. However, 33% of the labor markets surveyed showed growing want-ad volume, compared to 75% in November.

The latest help-wanted ads readings reflect the tepidly improving nature of the job market. "Business executives continue to express caution about investing, as well as new hiring. This is the hurdle the building economic momentum has to jump over," says Conference Board economist Ken Goldstein.


Friday, Feb. 27

U.S. President George W. Bush hosts German Chancellor Gerhardt Schroeder at the White House for a working lunch in Washington, D.C.

10 p.m. EST

Federal Reserve Board Chairman Alan Greenspan speaks at the first annual Stanford Institute for Economic Policy Research economic summit in Palo Alto, Calif.


Friday, Feb. 27, 8:30 a.m. EST

The preliminary 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 of 3.7%. 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 quarter.

The second pass at fourth-quarter growth is expected to show a couple of changes now that inventory and international trade data for the period is more complete. Inventory rebuilding by companies was stronger that originally estimated by the Commerce Dept. That would be a positive in tallying economic growth over the quarter. However, the gain in inventories could be wiped out in full -- and then some -- by the unexpectedly large December trade deficit.

Heading forward, inventories and foreign trade will be important factors in measuring economic growth this year. The key to above-trend economic growth for 2004 lies with businesses. As companies feel more confident and if demand remains robust, businesses will accelerate investment and hiring, and rebuild inventories.


Friday, Feb. 27, 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 February. News services will then report the index. According to economists queried by Informa Global Markets, the final reading for February will be 93.5, after hitting 103.8 in January, from 92.6 in December.

The preliminary drop was especially surprising since job growth picked up in January. "Consumers expected the continued economic strength to support renewed job growth, with more consumers anticipating a declining unemployment rate than at any other time during the past 20 years," said Richard Curtin, the director of the University of Michigan's Surveys of Consumers, in the January report.

According to the University of Michigan, there's a big difference in consumer attitudes according to income levels. The survey showed households making under $50,000 dropped especially sharply. The job market was one of the primary reasons for the drop. Those families with a household income above $50,000 also were less optimistic, but the decline was more subdued. Indeed, the gap between the two groups is at its widest in years.

The gap may in part be affected by the continued weakness in the labor market, especially in manufacturing. Despite signs that factory activity is on the rise, the January employment report showed manufacturers are still handing out pink slips. The North Central region, which includes the states of Indiana, Michigan, and Ohio, showed the biggest decline in January, after posting the biggest gain in December.


Friday, Feb. 27, 10 a.m. EST

The Chicago-area purchasing managers' February index of industrial activity in the Midwest probably moderated to 62.1%, say economists surveyed by Informa Global Markets. In January, the Chicago index showed business activity accelerated to 65.9%, the highest reading since July, 1994. The index eased to 61.2%, from 62.9% for November, but remained far above the October level of 55.8%.

The production component reached its highest level in over two decades, at 76.5% in January, from 68.9% in December. The new orders and unfilled orders components also climbed higher.

Inventories, however, showed a sharper decline for January. The index fell to 37.4%, from 42.2% in December. With demand accelerating and inventories still on the decline, it would appear that factories in the Midwest will be even busier in the coming months.

Perhaps increased demand in the Midwest will boost payrolls. So far, factories aren't hiring. The reading for employment slipped to 48.3%, from 49.6% in December, and 48.5% a month earlier. In recent months the index tracking employment has been lingering just below 50%. A reading above 50% indicates that manufacturers are adding workers.

By James Mehring

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