Vital Signs for the Week of Oct. 18

On tap: September consumer price index and leading economic indicators index, the October Philly Fed factory activity survey, and more

The fourth quarter may turn into another soft patch for the economy. After getting back on track in the prior quarter, higher energy costs have reemerged, and there are scant signs of any relief for the remainder of the year.

Some economists believe third-quarter growth could reach an annualized rate of 4.5%. Now, economists are beginning to lower their expectations for the fourth quarter, with forecasts coming in below 4%.

Oil prices topping $55 per barrel could crimp consumer spending in the fourth quarter, much as it did in the second period. The possibility of such an outcome increases as more people think oil will sit above $50 for a while or get more nervous that the cost of a barrel could touch $60.

If consumers view a jump in energy costs as being temporary, they're likely to make little, if any, changes in their spending. In such a scenario, they would simply absorb the higher costs by reducing the amount they save or by making minor shifts in purchasing habits. However, if the public believes price hikes are here to stay, they are more likely to make bigger adjustments in spending and travel patterns.

The September producer price data showed a decline of 0.9% in energy costs, but a sharp increase in the October data is certain. After all, oil prices rose 18% in September as the price approached $50 per barrel. Plus, the spot price of natural gas jumped 28% and heating oil rose 25%. Since then, prices for all three are even higher.

As winter sets in, natural gas and heating oil will be the energy commodities most watched. From the end of October through December, natural gas prices have risen by an average of 12.7% over the past three years. Heating oil is also likely to keep rising as the Energy Dept. reported a decline in distillate inventories, which covers heating oil. With the peak season for heating oil now here, falling inventories indicate further price pressures.

Gasoline prices are even starting to trend higher. The average cost of a gallon of unleaded gas has risen more than 4% since the end of September.

Higher energy costs may not be the only reason to believe growth in the final quarter could be sluggish. The surprising trade gap in August showed that exports aren't picking up despite the weaker dollar. And with some oil supplies in the Gulf of Mexico expected to be out of commission for a couple more months, oil imports are likely to be higher.

Inventories may also be a small drag. Companies are still adding inventories, as the 0.7% gain in August business inventories showed. However, unless inventory growth is faster in the fourth quarter than the close to 10% annual rate likely for the third quarter, inventories will be a negative for fourth-quarter growth.

The silver lining is that once energy prices recede, the fundamentals are still in place for solid growth. The third quarter showed consumers haven't thrown in the towel. And even though the totals are falling short of expectations, payrolls and wages are rising. Falling energy prices would help lift consumer purchasing power. On top of that, business investment is proving resilient. However, for now, the chances of chillier growth in the fourth quarter are rising.

Here's the weekly economic calendar.


Monday, Oct. 18, 6:45 a.m. EDT

U.S. Trade Representative Robert Zoellick and European Trade Commissioner Pascal Lamy discuss global trade at a lunch debate sponsored by the Friends of Europe to be held at the European Parliament in Brussels.


3M, American Standard, Delphi, E*Trade Financial, Forest Laboratories, Hasbro, Kraft Foods, Lexmark International, Mattel, Texas Instruments, Stanley Works, and more.


Monday, Oct. 18, 1 p.m. EDT

The National Association of Home Builders and Wells Fargo will release their monthly survey for October. The report updates housing market conditions by measuring builders' assessments of current sales, buyer traffic through model homes, and expected demand. In September, the activity index came back down to 68, after climbing to 71 in August, from 67 in July, and 68 in June.

All three components registered similar sized drops. The index tracking prospective buyer traffic eased to 52, from 56 in August, but remained above the July reading of 51. The index of single-family home sales slipped to 73, from 77 in August, while the measure of homebuilders' expectations for sales over the next six months fell to 75, from 78 in August.

The overall reading continues to move within a range of 64 to 72. These results are in line with a strong housing market. Indeed, NAHB Chief Economist David Seiders stated in the September report that home sales should continue at a healthy clip over the coming months.


Tuesday, Oct. 19, 10 a.m. EDT

Federal Reserve Board Chairman Alan Greenspan speaks at the America's Community Bankers annual convention in Washington, D.C.

12:30 p.m. EDT

Federal Reserve Board Governor Mark Olson speaks about the banking industry at Widener University in Chester, Pennsylvania.

1 p.m. EDT

Federal Reserve Bank of St. Louis President William Poole speaks at Delta State University in Cleveland, Mississippi.


Altria Group, AmSouth Bancorp, Applied Micro Circuits, Avery Dennison, Boise Cascade, Boston Scientific, Continental Airlines, Freeport-McMoRan Copper & Gold, Mellon Financial, Monster Worldwide, Motorola, RadioShack, Safeway, U.S. Bancorp, Wells Fargo, Zions Bancorp, and more.


Tuesday, Oct. 19, 7:45 a.m. EDT

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 Oct. 16. In the week ended Oct. 9, seasonally adjusted sales were up 0.5%, after a 0.3% rise in the prior period, and a 0.3% decline in the week ended Sept. 25.


Tuesday, Oct. 19, 8:30 a.m. EDT

The housing market continues to roll along. Housing starts probably fell back to an annual pace of 1.94 million in September. That's the consensus estimate of economists surveyed by Action Economics. The number of August housing starts inched up to an annual pace of 2 million, from 1.99 million in July, and 1.82 million in June.


Tuesday, Oct. 19, 8:30 a.m. EDT

Consumer prices for all goods and services are forecast to rise by 0.2% during September. That's the consensus estimate of economists queried by Action Economics. In August, consumer prices edged up by 0.1%, after a 0.1% decline in July, and a 0.3% gain in June. Even with a small increase in August, annual inflation slowed to 2.7%, from 3% in July, and 3.2% in June.

Energy had been the major contributor in driving up inflation earlier this year. However, in July and August, the energy component fell by 1.9%, and 0.3%, respectively. In September and October, energy could once again push inflation higher. During September, oil prices rose 18%, almost hitting $50 per barrel, and natural gas jumped 28%. Gasoline rose only 2.7% in September, although prices at the pump have been increasing at a brisker pace so far in October.

Excluding the more volatile energy and food items, prices probably rose by 0.2% as well, after core inflation ticked up by 0.1% in each of the prior three months. The yearly rate of core inflation slipped to 1.7%, after holding at 1.8% over the prior four months.


Tuesday, Oct. 19, 8:30 a.m. EDT

Inflation-adjusted weekly earnings of production workers probably held steady during September. The September employment report's figures showed a 0.2% rise in average weekly earnings and economists are forecasting a 0.2% increase in the consumer price index for the same period. In August, inflation-adjusted earnings grew by 0.3%, after a 1% gain in July. Compared with the same period a year ago, real earnings in August were up 0.4%.


Tuesday, Oct. 19, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the second fiscal week of October, ending Oct. 16. During the first week, sales were off 0.8% from the same period in September. For the full month of September, sales rose 0.7%, after dropping by 1.1% in August.


Wednesday, Oct. 20

Allegheny Technologies, Altera, Amgen, AMR Corp., Bausch & Lomb, Burlington Resources, Capital One Financial, Cendant, Chiron, Citrix Systems, Colgate-Palmolive, Countrywide Financial, Eastman Kodak, General Dynamics, Great Lakes Chemical, Harrah's Entertainment, Honeywell, J.P. Morgan Chase & Co, Kinder Morgan, Lucent Technologies, Mercury Interactive, Norfolk Southern, Provident Financial Group, Siebel Systems, Sonoco Products, St. Jude Medical, Symantec, United Technologies, Washington Mutual, Whirlpool, Wyeth, and more.


Wednesday, Oct. 20, 7 a.m. EDT

The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Oct. 15. In the week ended Oct. 8, the purchase index fell to 436.3, from 459 in the prior week, and 469.1 in the week ended Sept. 24. The latest reading of the four-week moving average slipped to 455.3, from 460.1 for the period ended Oct. 1.

The average rate on a conventional 30-year mortgage, according to HSH Associates, climbed to 5.93%, from 5.86% in the week of Oct. 1.

The refi index retreated to 1949.2, after rising to 2270.8 in the period ended Oct. 1, from 2211.1 in the week ended Sept. 24. The drop over the latest period pulled the refi index four-week moving average down to 2120.9, from 2126.7 in the week ended Oct. 1.


Thursday, Oct. 21, 9:30 a.m. EDT

Federal Reserve Bank of St. Louis President William Poole gives the opening remarks for the St. Louis Federal Reserve Bank's 29th Annual Economic Policy Conference. This year, the conference is entitled "Productivity, Labor, and the Business Cycle."

12 p.m. EDT

Federal Reserve Board Governor Ben S. Bernanke speaks about oil and the U.S. economy at Darton College in Albany, Georgia.

1:30 p.m. EDT

Federal Reserve Board Governor Susan Schmidt Bies speaks about financial institution supervision at the Connecticut Law Review annual symposium in Hartford, Connecticut.

6:15 p.m. EDT

Federal Reserve Bank of San Francisco President Janet Yellen speaks on the U.S. economy at a joint meeting held by the Global Association of Risk Professionals and the Security Analysts of San Francisco. The meeting will be held in San Francisco.


ALLTEL,, AT&T, Broadcom, Caterpillar, Cincinnati Financial, Coca-Cola, Consolidated Edison, Cooper Industries, Cooper Tire & Rubber, Eli Lilly, Equifax, Exelon, Google, Hershey Foods, Ingersoll-Rand, ITT Industries, Janus Capital Group, KLA-Tencor, Leggett & Platt, MBNA, McGraw Hill Cos., McKesson, Merck & Co, Noble Corp., Nucor, Occidental Petroleum, PACCAR, PeopleSoft, Reebok, Robert Half International, Schering-Plough, Sears, Roebuck and Co., Sherwin-Williams, Southern Company, Starwood Hotels & Resorts, Sunoco, Union Pacific, Visteon Corp., Wendy's International, Xerox, Xilinx, and more.


Thursday, Oct. 21, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended Oct. 16 is expected to ease to 345,000, according to the consensus estimate of economists surveyed by Action Economics. Jobless claims bounced up to 352,000 in the week ended Oct. 9. For the week ended Oct. 2, claims were upwardly revised to 337,000, from 372,000 in the prior week.

The four-week moving average increased to 353,000, from 349,000 in the period ended Oct. 2. In the week of Oct. 2, continuing jobless claims came in at 2.8 million.


Thursday, Oct. 21, 10 a.m. EDT

The Conference Board's composite report of leading economic indicators for September is expected to slip by 0.1%, say economists surveyed by Action Economics. The index declined by 0.3% for a second straight month in August, after a small 0.1% easing in June. Based on the September forecast, the index would be about 2% above the year ago reading, but a notch below the 2.2% yearly pace in August, and significantly lower than this year's peak of 4.9% in both March and April.


Thursday, Oct. 21, 12 p.m. EDT

The Philadelphia Federal Reserve Bank will release its October survey of business conditions for the mid-Atlantic region. Economists surveyed by Action Economics are forecasting a moderate increase in the index of general business conditions to 18. In September, the index dropped to 13.4, from 28.5 in August, and 36.1 in July.

Despite the fall in the headline reading, the new orders and unfilled orders indexes showed improvement after posting large declines in August. The shipments index did post a second straight drop in September, to 22.4. However, the July reading of 41.3 was the highest since December, 1993, and the current level is still significantly above the long-term average of 14.8.

Even though shipments are growing at a slower pace, respondents say that they are hiring. The index tracking the number of new employees rose to 21.5, from 17.2 in August.


Friday, Oct. 22

Ameren Corp., Cinergy, Fortune Brands, HCA, Manor Care, Nextel Communications, PPG Industries, PSEG, Schlumberger, TXU, Weyerhaeuser, Xcel Energy, and more.

By James Mehring

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