Vital Signs for the Week of Oct. 25

On tap: Third-quarter data on gross domestic product and employment costs, the Federal Reserve's Beige Book, September durable goods, and more

When it comes to economic potholes, the energy sector is getting all the attention. Prices for petroleum, heating oil, and natural gas continue to rise. However, businesses and companies still haven't navigated out of another serious rut: the rising costs of benefits.

According to the consensus forecast of economists surveyed by Action Economics, employment costs rose by 1% in the third quarter, or 3.9% from a year ago. In the second quarter, total costs were also up 3.9% from a year ago. But a disproportionate amount of rising employment costs is going to pay for benefits, such as health care. Indeed, the amount spent on benefits for employees was up by 7.2% from a year ago in the second quarter, compared with 2.5% for wages and salaries in the same period.

There appears to be little relief in sight, given results from an annual survey conducted by human-resource company Towers Perrin. The preliminary results gathered from the responses of 200 large businesses shows that costs are set to rise by an average of 8% in 2005. While the percentage increase doesn't match the double-digit gains in the past few years, the average dollar increase of $582 is on par with recent gains.

Another large jump in benefits costs will add further pressure to corporate profit growth next year. In addition, the rising costs of providing benefits have been cited as a reason why job growth has fallen short of expectations.

However, companies are also shifting a larger share of benefits costs onto employees. According to Towers Perrin, employees should expect to see, on average, a 14% increase in their health care premiums next year.

While rising health care costs alone are not likely to derail the consumer, it could end up being another weight on household spending and economic growth. The effort by companies to push a larger share of benefits costs onto employees could have the effect of partially offsetting any boost to spending from wage growth.

Here's the weekly economic calendar.


Monday, Oct. 25, 2 p.m. EDT

Fannie Mae CEO Franklin Raines and Freddie Mac CEO Richard Syron speak at the Mortgage Bankers Association's annual convention in San Francisco.


Monday, Oct. 25

Ashland, Automatic Data Processing, BellSouth, Electronic Data Systems, Engelhard, Hilton Hotels, Kellogg, Kimberly Clark, Nabors Industries, Pitney Bowes, Plum Creek Timber, Pulte Homes, Quest Diagnostics, Ryder System, WellPoint Health Networks, Zimmer Holdings, and more.


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

In September, existing home sales are likely to ease for a third straight month. According to the consensus estimate of economists surveyed by Action Economics, existing home sales held at an annual pace of 6.54 million, after slipping to 6.54 million in August, from a pace of 6.72 million in July, and a record rate of 6.92 million in June.

Even so, existing home sales are certain to break the previous annual sales record of 6.1 million set last year. Mortgage rates remain below 6%, which should help drive sales. In 2005, the negative effect on mortgage rates resulting from Fed rate hikes and signs of an improving economy are likely to outweigh the positive effects of more jobs and higher income.

In addition, the earlier bounce in mortgage rates this year prompted many people that were on the fence about buying a home to purchase one before rates went up for good. That may dampen any similar trends when mortgage rates once again turn higher.


Tuesday, Oct. 26, 11:15 a.m. EDT

Federal Reserve Board Vice Chairman Roger Ferguson speaks about investments at The Citadel college in Charleston (SC).


AFLAC, Agere Systems, Allied Waste Industries, Avaya, Burlington Northern Santa Fe, Centex, Chubb, DuPont, Goodrich, Halliburton, Health Management Associates, International Paper, Johnson Controls, Lockheed Martin, Marathon Oil, Sara Lee, T. Rowe Price, Valero Energy, William Wrigley, and more.


Tuesday, Oct. 26, 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. 23. In the week ended Oct. 16, seasonally adjusted sales were down 0.2%, after rising 0.5% in the prior week, and a 0.3% rise in the week ended Oct. 2.


Tuesday, Oct. 26, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the third fiscal week of October, ending Oct. 23. During the week ended Oct. 16, sales were still 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.


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

The October index of consumer confidence is likely to move lower for a third straight month. Economists surveyed by Action Economics expect a decline to 94, from 96.8 in September, 98.7 in August, and 105.7 in July.

The fall in the overall index is due in large part to waning confidence in the labor market. Consumers who said that job conditions were good fell, while those who said jobs were "hard to find" was practically unchanged.


Wednesday, Oct. 27

Amerada Hess, Anthem, Biogen Idec, Black & Decker, Boeing, Comcast, ConocoPhillips, Cox Communications, EOG Resources, Fluor, JDS Uniphase, Kerr-McGee, LSI Logic, Marsh & McLennan, MetLife, Moody's, Newmont Mining, Northrop Grumman, Praxair, Procter & Gamble, Sealed Air, Simon Property Group, St. Paul Travelers, Watson Pharmaceuticals, and more.


Wednesday, Oct. 27, 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. 22. In the week ended Oct. 15, the purchase index jumped to 461.4, from 436.3 in the previous period, and 459 in the week ended Oct. 1. The latest reading of the four-week moving average moved up to 456.5, from 455.3 in the period ended Oct. 8.

The average rate on a conventional 30-year mortgage, according to HSH Associates, fell to 5.82%, from 5.93% in the week of Oct. 8.

The refi index rebounded, hitting 2155.2 in the week ended Oct. 15, from 1949.2 in the previous period, but remaining below the 2270.8 level for the period ended Oct. 1. As a result of the latest increase, the refi index four-week moving average picked back up to 2146.6, from 2120.9 during the prior week.


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

New orders received by manufacturers of durable goods probably rebounded 0.5% in September, say economists surveyed by Action Economics. In August, orders slipped by 0.3%, after a big upwardly revised gain of 1.9% in July, and a 1.3% increase in June.

The August decline was driven by volatility in aircraft orders. Following a 103.5% surge in July, orders dropped 42.9% in August. Strip out the aircraft category, and orders would have been up by 2.6% in August, but down 1.4% in July.

Once again, orders for computers and electronic parts will be an important component to watch. In August, orders jumped 4.6% after falling 4.2% in July and 1.2% in June. It is one of the largest categories and an important indicator of business investment.


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

New single-family homes sales during September were lower but still strong. According to economists surveyed by Action Economics, September sales most likely inched down to an annual pace of 1.16 million, from 1.18 in August. Sales in July eased to an annual rate of 1.08 million, from 1.17 million in June.

Other housing data point to a weather-related slowdown in September. The October National Association of Homebuilders monthly housing market index rebounded strongly after falling in September. Housing starts also dipped in September. Housing starts in the South only fell by 1%, compared to a 26.9% drop in the Northeast. However, hurricanes Ivan and Jeanne had a major impact on the entire eastern half of the U.S.


Wednesday, Oct. 27, 2 p.m. EDT

The Federal Reserve will release its compilation of regional economic activity, based on survey responses from each of its 12 districts. The Beige Book comes in advance of the upcoming monetary policy meeting scheduled for Wednesday, Nov. 10. Economists surveyed by Action Economics expect the central bank to lift rates from 1.75%, to 2%. However, given concerns of another economic slowdown during the fourth quarter, economy watchers don't expect the Fed will raise rates at the Dec. 14 meeting.

EARNINGS REPORTS Thursday, Oct. 28 Adolph Coors, AES, Aetna, Alberto-Culver, American Power Conversion, Century Telephone, Coca-Cola Enterprises, CSX, Dow Chemical, Dynegy, Eastman Chemical, ExxonMobil, Franklin Resources, Gateway, Georgia-Pacific, Gillette, International Flavors & Fragrances, King Pharmaceuticals, Liz Claiborne, Loews, NCR, Newell Rubbermaid, North Fork Bancorp, Phelps Dodge, Raytheon, Sabre Holdings, Scotts Tribune, Verizon, Waste Management, and more.


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

First-time claims for jobless benefits for the week ended Oct. 23 is expected to grow to 335,000, according to the consensus forecast of economists surveyed by Action Economics. Jobless claims fell to 329,000 in the week ended Oct. 16, the lowest reading since early September. For the week ended Oct. 9, claims were upwardly revised to 354,000, from 338,000 in the prior week.

The four-week moving average dropped to 348,300, from 353,800 in the period ended Oct. 9. In that week, continuing jobless claims came in at 2.8 million.


Thursday, Oct. 28, 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. In August, the index held at 37 for a second straight month, from 38 in June. The index has held within a range between 37 and 40 since June of 2003.

The percentage of markets with a rising want-ad volume improved to 49%, from 41% in July, and 31% in June. However, the latest percentage is below the May peak of 75%.

Despite the improvement in the proportion of labor markets reporting higher want-ad volume, overall volume in each of the nine U.S. regions showed a decline. Over the three-month period through August, help-wanted ads improved in just three of nine U.S. regions. According to the Conference Board report, questions about the economy and high oil prices have caused businesses to turn more cautious about hiring.


Friday, Oct. 29, 1 p.m. EDT

Federal Reserve Bank of Chicago President Michael Moskow speaks at the "2004 Headquarters and Cities Agenda" conference sponsored by the Federal Reserve Bank of Chicago, in Chicago.

Thursday, Oct. 2, 2 p.m. EDT

Federal Reserve Board Vice Chairman Roger Ferguson discusses interest rates at the University of Connecticut in Hartford, Connecticut.


Alliant Energy, Anadarko Petroleum, Archer Daniels Midland, Avon Products, ChevronTexaco, Clear Channel Communications, Washington Post, and more.


Friday, Oct 29, 8:30 a.m. EDT

The advanced report on economic growth for the third quarter of 2004, measured by real gross domestic product, is expected to show the economy expanded by a seasonally adjusted annual rate of 4.3%. That's the consensus among economists queried by Action Economics. The economy expanded by 3.3% in the second quarter, after expanding by 4.5% in the first period of 2004, and 4.2% in the final quarter of 2003.

The biggest positive in the third quarter was consumer spending. After growing by an annualized rate of 1.6% in the second quarter, the data should show a considerable pick-up in the third quarter. Retail sales and vehicle purchases were stronger in the third quarter.

However, there is a risk that the third-quarter growth will turn out weaker than currently forecast. The September foreign trade report doesn't come out until November, so the Commerce Dept. must estimate it for the GDP account. After a larger than expected shortfall in August, and the upward surge in oil prices during the end of the month, a large September deficit is likely.

Another unknown heading into the advanced report is how inventories will effect growth. The September inventory figures also come out in November. The preliminary GDP report in late November will provide the first look at all the data.


Friday, Oct 29, 8:30 a.m. EDT

The cost of wages, salaries, and benefits probably grew by 1% in the third quarter, according to economists surveyed by Action economics. In the prior quarter, employment costs rose 0.9%, after a 1.1% rise in the first period of 2004. Given the second-quarter forecast, the index would be up 3.9% from a year ago for the second straight period.

Employee benefits such as health care premiums are far outpacing wage and salary gains. The Labor Dept. reported that benefit costs, which make up about 30% of overall compensation costs, rose by 7.2% from a year ago during the second quarter. Wages and salaries, meanwhile, posted a 2.5% increase from the same period a year ago.

When it comes to benefit costs, there are also big differences between sectors. The costs of benefits among goods producing industries have soared 8.9% from a year ago, while in the service industry, premiums and expenses have risen 6.5%.


Friday, Oct. 29, 9:45 a.m. EDT

The University of Michigan's Survey Research Center will report to its final reading of consumer sentiment for October. The median forecast by economists surveyed by Action Economics is for the index to hold at 88, after the preliminary reading sank to 87.5, from a final reading of 94.2 in September, and 95.9 in August.

The preliminary October reading was the lowest since April of 2003, and reflected building concerns about energy prices and the underperforming labor market. As a result of higher energy prices, consumers also upped their inflation expectations.


Friday, Oct. 29, 10 a.m. EDT

The Chicago-area purchasing managers' index of industrial activity in the Midwest probably softened a little in October, say economists queried by Action Economics. The consensus estimate is for a reading of 59.3%. The index has been seesawing around 60% in recent months. In September, the index jumped to 61.3%, from 57.3% in August, but remains below the 64.7% posted for July.

The underlying picture for the factory sector remains vibrant. New orders surged in September, with the index coming in at 68.7%. More than 50% of respondents reported an increase in orders, the third time that has ocurred in six months.

The rise in orders also contributed to greater levels of unfilled orders. In addition, more factories hired workers, with the employment index rising to 53.9%, from 51.1% in August.

By James Mehring

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE