Vital Signs for the Week of Dec. 20

On tap: November durable goods data, a final look at third-quarter gross domestic product, new home sales figures, and more

There isn't much relief in sight for the dollar. Even though the U.S. economy should outperform most other developed economies next year, widening deficits in both the federal budget and foreign trade are making some foreign investors nervous.

After concerns earlier this year about an economic soft patch in the fourth quarter, growth is sizing up to be pretty steady. According to BusinessWeek's yearend survey of economists, real gross domestic product (GDP) should expand at an annualized pace of 3.8% in the final quarter. Growth in 2005 is expected to ease a little, but still remain well north of 3%. If economists are right, the U.S. economy will likely outpace most developed countries, including Japan, Canada, Australia, and the euro zone.

Nonetheless, most economy watchers are predicting further weakening in the U.S. dollar. The primary reason is unease with America's growing current-account deficit. In the third quarter, the shortfall grew to $164.7 billion, after posting a $164.4 billion deficit in the prior quarter. The third-quarter total was equal to 5.6% of gross domestic product.


  In the past, current-account deficits lingering above 3% of GDP have raised questions about a nation's ability to finance its international obligations, a factor often associated with a weakening currency. Because the U.S. was better positioned relative to the rest of the world in terms of economic growth and investment opportunities, it was considered more able to manage a current-account burden of such size. Now, however, that certainty may be waning.

The current account is basically a score sheet of America's transactions with the world. The main reason why a current-account deficit exists lies in America's tremendous appetite for imports. In October the trade gap established another record high, hitting $55.5 billion. Since the July shortfall of $55.3 billion, the monthly trade deficits have topped $50 billion each month.

The high cost of crude oil has contributed to the swollen trade gaps. If oil recedes, the trade deficits may also become a little smaller -- for the time being. What's more, the weaker dollar should help boost exports somewhat, by making American made goods more competitive abroad.

Unfortunately, the dollar has fallen the most in areas that are underperforming the U.S. For instance, Japan and Germany have been relying on exports to boost growth. Domestic demand in these countries remains soft, which may limit the amount of potential export opportunities for U.S. companies. Faster-growing locations, such as China and Southeast Asia, try to peg currencies to the U.S. dollar in order to help their exports to the U.S. The move also means U.S. exporters will see few benefits of a falling greenback in these countries.


  Purchases of stocks and government bonds by foreign investors, governments, and central banks have helped finance the U.S. current-account shortfall. But financial markets are nervous that foreign investors will become less eager to park their money in the U.S. as the gap grows.

The latest Treasury International Capital report showed that the net amount of foreign purchases of U.S. securities slowed to $63 billion, from $65 billion in September. A six-month moving average shows that foreign investment has cooled off a bit. Since hitting $82 billion in June, the average has fallen to $65.9 billion in October.

If foreign investors' appetite to invest in the U.S. diminishes, something will have to change. Interest rates will have to rise in order to make investment returns more attractive and keep foreign investment flowing. Or, the U.S. trade and government deficits will have to shrink.

Here's the weekly economic calendar.

The bond market will close early on Thursday, Dec. 23, and all financial markets will be closed on Friday, Dec. 24 in observance of Christmas Eve.


Monday, Dec. 20, 12:30 p.m. EST

Federal Reserve Bank of Richmond President Jeffrey Lacker speaks about the U.S. economy at a luncheon held by the Charlotte Chamber of Commerce in Charlotte, N.C.


Monday, Dec. 20

Jabil and more.


Monday, Dec. 20, 10 a.m. EST

The Conference Board's composite index of leading economic indicators for November most likely increased for the first time in six months. According to the consensus forecast from Action Economics LLC, the index rose 0.1% in November. A rebound in consumer expectations, and the expected climb in durable goods orders should help push the index higher. At the same time, the uptick in jobless claims, and a decline in the average weekly manufacturing hours worked per week should keep the gain modest.

The Conference Board's index has declined for five straight months. In each of the prior four months the index dropped 0.3%, after a 0.1% dip in June. Based on the November consensus estimate, the index would be about 1.2% above the year-ago reading. Even so, the Conference Board stated in its October report that index is "not yet signaling a downturn in the economy." The 1.2% yearly gain is in line with the long-term yearly growth rate for this economic indicator.


Tuesday, Dec. 21, 7:45 a.m. EST

This weekly tracking of retail sales, assembled by the International Council of Shopping Centers and UBS, will update buying activity for the week ending Dec. 18. In the week ended Dec. 11, seasonally adjusted sales rebounded 1.2%, after a 1.7% drop over the prior week, and a 1.5% fall in the period ended Nov. 27.


Tuesday, Dec. 21

Bear Stearns, General Mills, Solectron, and more.


Tuesday, Dec. 21, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the third fiscal week of December, ending Dec. 18. Over the first two weeks of December, ended Dec. 11, sales were off by 0.8%. For the full month of November, sales were down 0.5%.


Wednesday, Dec. 22, 7 a.m. EST

The Mortgage Bankers Assn. releases its tally of mortgage applications for both home-buying and refinancing for the week ending Dec. 17. In the week ended Dec. 10 the purchase index was virtually unchanged at 488.9. In the previous week, the index rose to 490.9, after slipping to 460.3 in the period ended Nov. 26. The latest reading of the four-week moving average nudged up to 475.9, from 473.7 over the week ended Dec. 3.

The average rate on a conventional 30-year mortgage, according to HSH Associates, eased back to 5.8%, from 5.9% during the period ended Dec. 3.

The refi index slipped a little more. Over the week ended Dec. 10, the index came in at 1852.4, after falling to 1890.6 over the week ended Dec. 3, from 1912.3 over the week ended Nov. 26. The fall pushed the refi index four-week moving average down to 1958.65, from 2089.4 over the period ended Dec. 3.


Wednesday, Dec. 22

ConAgra Foods, Micron Technology, and more.


Wednesday, Dec. 22, 8:30 a.m. EST

The third and final report on economic growth for the third quarter of 2004, measured by real gross domestic product, isn't expected to be much different than the preliminary report. According to economists polled by Action Economics, the economy expanded by a seasonally adjusted annual rate of 3.9%. The preliminary report upwardly revised growth to 3.9%, after the advanced report showed third quarter growth was 3.7%.

There may some small offsetting adjustments. The October figures for international trade showed a small downward revision to the September total. A smaller trade gap would be a positive for GDP. At the same time, the October data on business inventories had a downward revision for the September total, a small negative for third-quarter growth. JOBLESS CLAIMS

Thursday, Dec. 23, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Dec. 18 most likely moved up 330,000, say economists queried by Action Economics. Jobless claims plunged to 317,000 in the week ended Dec. 11, the lowest level since early July. During the prior period claims swelled to a 10-week high of 360,000, from 350,000 over the period ended Nov. 27. The latest reading should quell some concerns about the recent upward trend in claims.

As a result, the four-week moving average retreated to 337,800 in the latest week, from 342,300 in the week ended Dec. 4. During the week of Dec. 4, continuing jobless claims fell back to 2.74 million, from 2.79 million in the week ended Nov. 27.


Thursday, Dec. 23, 8:30 a.m. EST

Personal income probably improved a little more in November. The consensus among economists surveyed by Action Economics is for a 0.3% increase during the month. In October, income grew 0.6%, after a 0.2% September rise, and 0.4% gain in August. Compared to a year ago, income was up by 5.2%. Taking inflation into account, personal income was still up 2.8% from a year ago in October.

Outlays on goods and services are forecast to have increased by 0.3% in November. Consumer expenditures rose 0.7% in October, after a solid gain of 0.6% over September, and no change in August. Yearly growth reached a pace of 6.6% in October, up from a 6.1% clip in September.

In its latest post-meeting press release, the Federal Reserve said, "inflation and longer-term inflation expectations remain well contained." The October price index of personal consumption expenditures rose 0.4% from September, and 2.4% from the same period a year ago. The uptick in the index was due largely to 4.5% monthly gain in energy prices. The price index tracking durable goods is down 1.1% from a year ago, although that was the smallest yearly decrease since January of 2001. The Fed prefers the personal consumption expenditures price indexes as a means to gauge inflation.


Thursday, Dec. 23, 8:30 a.m. EST

New orders received by manufacturers of durable goods are expected to have rebounded in November. The median forecast is for a 0.6% increase, following a 1.1% tumble in October, and a 1% gain in September.

In a twist on the recent trend, the October fall would have been worse if not for a gain in new orders for aircraft equipment. Take away the transportation sector, and orders would have been off 1.5%. The increase in aircraft was part of a surge in orders for defense equipment. The decline in orders for non-defense factory goods was broad based.


Thursday, Dec. 23, 10 a.m. EST

New single-family homes sales during November probably edged a little lower. Economists surveyed by Action Economics are forecasting new home sales stood at a pace of 1.22 million, following an October rate of 1.23 million, and a September level of 1.22 million.


Thursday, Dec. 23, 9:45 a.m. EST

The University of Michigan's Survey Research Center will report its final reading of consumer sentiment for November to its clients. News services will then report the index. The consensus among economists polled by Action Economics is for the index to hold at 95.7. The preliminary reading posted a larger than expected gain to 95.7, from 92.8 in November, and 91.7 in October.

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