Vital Signs for the Week of Nov. 8

On tap: Federal Reserve's monetary policy meeting, October retail sales, September international trade data, and more

Heading into November, there was one vote that seemed certain. Nearly all economy watchers believed the Federal Reserve would raise its fed funds interest rate at the Nov. 10 monetary policy meeting. Economists surveyed by Action Economics are nearly unanimous in their expectation for a quarter-point increase to 2%.

Before the surprising October jobs data, the consensus view for December was that the Fed would pause to asses the economic landscape. After all, oil prices were at $55 per barrel not that long ago and the Fed's Beige Book report released on Oct. 27 stated, "many reports suggested that higher energy costs were constraining consumer and business spending."

The latest economic data would now appear to give the Fed a green light on raising rates once again in December. Economists agree, as the consensus forecast after the jobs report now calls for another 25 basis-point hike.

The biggest reason is the labor market. After several months of lackluster job growth, the October report showed a jump in payrolls of 337,000. A big chunk of the gain was probably related to the September hurricanes. More than 200,000 people were out of work and without pay due to the September storms. Because those workers didn't receive any pay during the survey week, the Labor Dept. didn't require businesses to list them as employed. Presumably, most of those workers returned to their jobs in October and were once again considered employed. Other possible storm-related effects included a jump in construction payrolls of 71,000.

The October report also revised recent history. September job growth moved from 96,000 to 139,000, while the August figure was increased from 128,000 to 198,000. That's an increase of 113,000 jobs. While the earlier gains aren't robust, the improved job growth is certainly positive news for consumer spending.

Outside of autos, economists believe retail sales rose by 0.5% in October. The International Council of Shopping Centers reported October chain-store sales were up 4.1% from a year ago. That was the best performance since May. It will be hard for consumer spending to grow at the third-quarter pace of 4.6%. However, the latest data shows that the feared soft patch in the fourth quarter is unlikely to leave personal consumption growing at the meager 1.6% pace registered for the second quarter.

On top of those numbers, there are other favorable factors. The latest nonfarm productivity data was better than expected. The 1.9% gain in the third quarter outpaced economists' forecasts of 1.1% growth. Crude oil prices have eased in the past two weeks as well. The lower oil prices go, the better it is for consumer spending.

Recent speeches by Fed members show there's a continued desire to raise interest rates at a "measured" pace. Based on the past four months, that means more quarter-point rate hikes. With the economy likely to post better than 3% growth in the fourth quarter, there few reasons to expect the Fed will take a break in December.

The bond market will be closed on Thursday, Nov. 11 in observance of the Veteran's Day Holiday (the stock market is open).

Here's the weekly economic calendar.


Tuesday, Nov. 9

Cisco Systems, Computer Sciences, Hercules, Marsh & McLennan, May Department Stores, and more.


Tuesday, Nov. 9, 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 Nov. 6. In the week ended Oct. 30, seasonally adjusted sales were down 0.3%, after a slip of 0.6% in the prior period, and a 0.2% fall in the week ended Oct. 16.


Tuesday, Nov. 9, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the first fiscal week of November, ending Nov. 6. During the full month of October, sales were down 0.6% compared with September. For the full month of September, sales grew 0.7%.


Tuesday, Nov. 9, 10 a.m. EST

Wholesale sales should continue to grow briskly, with a forecast increase of 0.7% for September. That's the consensus estimate of economists surveyed by Action Economics. In August, sales improved by 1.2%, after a 0.8% gain in July. Sales came in at an annual pace of 15% in August, up from 14.1% in July, and 14.2% in June.

Wholesalers are also replenishing inventories. In September, inventories grew by 0.9%, after a 1.5% jump in July. At the current pace, inventories are on track to rise by an annualized rate of 13.4% for the third quarter, up from 9.7% in the second period.


Tuesday, Nov. 9, 10 a.m. EST

The Richmond Federal Reserve Bank will release its October survey of business conditions in the Richmond Fed district. The September survey showed further strengthening among the region's manufacturers, with the index climbing to 22, from 18 in August, and 6 in July. However, respondents were less optimistic about conditions in six months. The new orders index did recede to 8, from 13 in August. The level of unfilled orders also retreated, falling to -6, from 1 in August, and -3 in July. The combination would suggest that factories were able to make up some ground on unfilled orders that piled up earlier in the year. However, respondents did report a small gain in employment, with the index tracking the number of employees rebounding to 5, from -2.

With regards to future prospects, respondents were still upbeat, but less so than in August and July. The shipment index slipped to 23, from 28 in August. The pace of unfilled orders and hiring looks set to slow down some in the coming six months as well.


Wednesday, Nov. 10

The Federal Reserve's Federal Open Market Committee meets to discuss monetary policy. An announcement by the Fed will come around 2:15 p.m. ET.

Economists expect the FOMC to raise the federal funds rate once again. Those surveyed by Action Economics unanimously forecast a 25 basis-point increase, to 2%.

The bigger question is whether or not the Fed will raise rates at its Dec. 14 meeting. The post-meeting press release may give some clue as to how the central bank's perception of the economy may be changing. Some economists believe the Fed will pause at the final monetary policy meeting of the year.


Federated Department Stores, Starbucks, and more.


Wednesday, Nov. 10, 7 a.m. EST

The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Nov. 5. In the week ended Oct. 29, the purchase index hit 496.5, from 440.9 in the week ended Oct. 22, from 461.4 in the previous period. The latest reading of the four-week moving average climbed to 458.8, from 449.4 in the period ended Oct. 22.

The average rate on a conventional 30-year mortgage, according to HSH Associates, slipped to 5.77% in the week of Oct. 29, from 5.81% in the prior week.

The refi index rose to 2303.9, after climbing to 2233.8, from 2155.2 in the week ended Oct. 15. The gain pushed the refi index four-week moving average to 2160.5, from 2152.3 in the period ended Oct. 22.


Wednesday, Nov. 10, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Nov. 6 is expected to inch up to 336,000, according to the consensus forecast of economists surveyed by Action Economics. Jobless claims fell to 332,000, from 351,000 in the week ended Oct. 23. For the week ended Oct. 16, claims retreated to 330,000, from 355,000 in the prior week.

The four-week moving average dropped to 342,000, from 343,500 in the period ended Oct. 23. In the week of Oct. 23, continuing jobless claims stood at exactly 2.8 million.


Wednesday, Nov. 10, 8:30 a.m. EST

The monthly trade deficit most likely narrowed slightly during September. The U.S. trade deficit for goods and services is forecast to have narrowed slightly to $53.6 billion, says Action Economics. In August, the deficit stood at $54 billion, after a smaller trade gap of $50.5 billion in July, and a record monthly deficit of $55 billion in June. A record level of imports in August was partially mitigated by an uptick in exports.

One reason to believe the August figure will be larger is the price of oil. The Commerce Dept. report measures the value, not volume, of a good or service. In September, oil prices topped $49 by the end of the month.


Wednesday, Nov. 10, 8:30 a.m. EST

Import prices probably posted another significant increase. Economists surveyed by Action Economics are forecasting an October leap of 1.1%. In September, prices rose 0.2%, following a 1.4 jump. Oil should once again be the primary source for the monthly rise.

Excluding petroleum, import prices were up by 0.1% in September, and grew 0.3% over August. Compared with the same period a year ago, overall import prices were up 7.8% in September. Excluding energy, the yearly rise was just 2.9%.

Export prices most likely grew 0.3% in October, following a 0.4% gain in September, and a 0.5% drop in the prior month. Compared with a year ago, export prices were up 4% for a second straight month, after hitting 4.5% in July. Prices for agricultural commodities continue to decelerate, falling to a yearly rate of 2.2%, after a recent peak of 23.4% in April.

Outside of agriculture, figures showed a pick up in yearly prices. Both capital and consumer goods prices inched a little higher. Compared with the same period in 2003, capital goods prices were up 0.4% in September, the biggest yearly gain since early 2001. Export prices for consumer goods were up 1.9%, the largest yearly price increase since mid 1993.


Wednesday, Nov. 10, 2 p.m. EST

The federal government probably compiled a sizeable deficit for the first month of the new fiscal year. The Treasury Dept. releases details on the government's budget for October, the first month of fiscal year 2005. The median estimate among economists surveyed by Action Economics is a $57.5 billion deficit. In September, the government rang up a surplus of $24.4 billion.

However, for the full fiscal year 2004, the budget deficit soared to $412.2 billion, after a $377.1 billion shortfall in fiscal 2003. While this year's deficit did come in below the Office of Management and Budget's forecast of $444.7 billion, it was still the largest yearly shortfall on record.


Thursday, Nov. 11

Agilent Technologies, Dell, Kohl's, QUALCOMM, Target, Tiffany & Co., and more.


Friday, Nov. 12, 8:30 a.m. EST

Federal Reserve Board Governor Mark Olson speaks about banking supervision in Washington, D.C.


Friday, Nov. 12, 8:30 a.m. EST

October retail sales growth slowed considerably, according to the consensus estimate of economists surveyed by Action Economics. The median forecast is for a 0.2% rise in October, following a 1.5% jump in September, and a 0.2% slide in the prior month.

A slowdown in auto sales is to blame for the smaller gain. Excluding autos, sales are expected to increase by 0.6%, after a 0.6% rise in September, and a 0.2% gain in August. Light vehicle sales came in at an annual pace of 17.1 million, after a stout rate of 17.5 million vehicles in September


Friday, Nov. 12, 10 a.m. EST

Inventories held by manufacturers, wholesalers, and retailers are forecast to have increased by 0.5% during September. That's the median estimate from Action Economics. Inventories expanded by 0.7% in August, after a gain of 1% in July, and 1.1% in June.

The Commerce Dept. already released September factory inventory numbers. Manufacturers' reported that their inventories rose by 0.3%, after a 0.7% rise in August.

In its first look at third-quarter gross domestic product, the Commerce Dept. assumed that slower inventory growth was a drag on growth. The advanced figure for inventories was created with data for July and August and an assumption that inventories would rise in September. However, a surprise to the downside could lead to a lower inventory number in the next pass at third-quarter gross domestic product. That could result in a downward revision to GDP growth.


Friday, Nov. 12, 10 a.m. EST

The University of Michigan's Survey Research Center will report its initial index reading of consumer sentiment for November. According to economists surveyed by Action Economics, the preliminary November reading probably inched back up to 93, from 91.7, but remained under the final September reading of 94.2.

There was some further erosion in consumer optimism regarding the job market. The final report showed that consumers don't believe strong job growth will return over the coming year. Those surveyed also believed that the runup in gas prices should soon come to an end.

Despite the more tempered view of the economy, the overall sentiment index is still in line with 3.25% growth in consumer spending next year, according to the University of Michigan.

By James Mehring

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