Vital Signs for the Week of Jan. 18

On tap: December figures on consumer prices, the Federal Reserve's Beige Book report, regional factory activity data, and more

By Jim Cooper

The upcoming week will offer some early-bird insights into how the economy is shaping up in the first quarter, as well as a few final bits of information on the fourth quarter, in advance of the Commerce Dept.'s initial report on last quarter's growth in real gross domestic product, due out on Jan 28.

The biggest news of the latest week -- which will have a sizable impact on that GDP number -- was clearly the unexpected and ballooning trade deficit to a record $63.3 billion. It was the second large increase in a row. In October, the gap widened to $56 billion from $50.9 billion in September.


  Economists expect that widening to subtract nearly two percentage points from the growth of fourth-quarter GDP, compared to what it would have been had the deficit remained stable. Already, many forecasters are knocking down their expectations from the 4% range to the 3% range.

However, that new pessimism might be premature. Despite the big drag from foreign trade, economic growth last quarter was still well supported by a several key factors. Most important: Another strong quarterly performance by consumers. Given the solid 1.2% gain in December retail sales, compared to November, real consumer spending for the quarter appears to have grown at an annual rate of 4% or greater.

Capital spending by businesses is also on track to post another double-digit gain for the quarter. On the whole, overall demand by U.S. consumers, businesses, and government institutions, is likely to grow at close to a 5% annual rate.


  Moreover, industrial production climbed 0.8% in December from November, suggesting the manufacturing sector has plenty of momentum heading into 2005. And at the same time, business inventories in November jumped by 1%. That means inventories in the fourth quarter grew considerably faster than they did in the third quarter. As a result, that inventory acceleration will offset much of the drag from the wider trade gap.

The point here is clear: The economy was in very good shape at the end of 2004, driven by strong U.S. demand, and it may take more than just a sharply wider trade gap to put a big dent in overall growth. If the January data come in with the strength of the December reports, 2005 will off to a very good start.

Here's the economic calendar.

Note: All markets are closed on Monday, Jan. 17, for the Martin Luther King Jr. holiday.


Tuesday, Jan. 18, 8:15 a.m. EST

Federal Reserve Bank of Philadelphia President Anthony Santomero speaks on the regional economic outlook at a Greater Philadelphia Chamber of Commerce breakfast in Philadelphia.

9 a.m. EST

Federal Reserve Bank of Minneapolis President Gary Stern gives a speech entitled, "Business Decisions and Prospects: Good, Bad, Indifferent?" before the Financial Planners Association in Minneapolis.

3 p.m. EST

Federal Reserve Bank of Richmond President Jeffrey Lacker discusses the economic outlook at Guilford College in Greensboro, North Carolina.


Tuesday, Jan. 18

3M (MMM ), Advanced Micro Devices (AMD ), Forest Laboratories (FRX ), Johnson Controls (JCI ), Parker Hannifin (PH ), Teradyne (TER ), Wells Fargo (WFC ), Yahoo (YHOO ), and more.


Tuesday, Jan. 18, 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 Jan. 15. In the week ended Jan. 8, seasonally adjusted sales fell by 0.2%, after a 0.2% gain in the week ended Jan. 1, and a 2.7% surge in the prior week on last-minute holiday shopping.


Tuesday, Jan. 18, 8:30 a.m. EST

The New York Federal Reserve Bank will release its January survey of business conditions for manufacturers in the New York Fed district. According to the median forecast of economists surveyed by Action Economics, the headline manufacturing activity index probably retreated to 26.5. The December index bounced back to 29.9, after edging up to 18.9 in November, from 17.4 in October.

Other indexes showed a boost in activity as well. The new orders index jumped to 40.2, from 16.9 in November, and 21.2 in October. The unfilled orders index turned positive, reaching 10.4, after registering two consecutive negative readings. The index tracking number of employees rebounded to its highest level since January of 2004.

Expectations for the coming six months were still fairly optimistic, but not as upbeat as November. The December general business conditions index declined for a third straight month, coming in at 47.8, from 53.9 in the prior month, and 61.3 in October. The new orders, shipments and unfilled orders indexes all eased as well.


Tuesday, Jan. 18, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the second fiscal week of January, ending Jan. 15. During the first week, ended Jan. 8, sales were up 1.1% compared to the first fiscal week of December. For the entire month of December sales were up 0.2% from November.


Tuesday, Jan. 18, 1 p.m. EST

The National Association of Home Builders and Wells Fargo bank issues the monthly survey results for January. The report updates housing market conditions by measuring builders' assessments of current sales, buyer traffic through model homes, and expected demand. In December, the activity index edged up to 71, from 70 in November, 69 in October, and 67 in September.

The index tracking single-family home sales improved held at 77 for a second straight month, from 76 in October, and 73 in September. Expectations for sales in the coming six months moved back up to 79, from 78 in November. The index for prospective buyer traffic climbed to 52 in December, after three consecutive monthly readings of 51.

On a regional basis, the latest figures show builders were most confident in the West and South. The Midwest had the weakest result, although more homebuilders than not thought conditions were positive.


Wednesday, Jan. 19

Bank of New York (BNY ), Capital One Financial (COF ), eBay (EBAY ), General Motors (GM ), J.P. Morgan Chase (JPM ), Lucent Technologies (LU ), Mellon Financial (MEL ), Northern Trust (NTRS ), Southwest Airlines (LUV ), Wachovia (WB ), Washington Mutual (WMU ), and more.


Wednesday, Jan. 19, 7 a.m. EST

The Mortgage Bankers Assn. releases its tally of mortgage applications for both home buying and refinancing for the week ending Jan. 14. In the week ended Jan. 7 the purchase index fell to 393.1, from 417.3 in the previous week, and 483.8 in the period ended Dec. 24. The latest reading of the four-week moving average dropped to 441.3, from 465.3 over the week ended Dec. 31.

The average rate on a conventional 30-year mortgage, according to HSH Associates, edged up to 5.86%, from 5.83% in the period ended Dec. 31.

The refi index moved up slightly, to 1720.5, from 1701.3 in the week ended Dec. 31, and 1803.9 in the prior week. Even so, the four-week moving average declined to 1796. In the week ended Dec. 31, the moving average was 1829.


Wednesday, Jan. 19, 8:30 a.m. EST

Consumer prices for all goods and services are forecast to have remained unchanged during December according to Action Economics. The benign monthly gain will be due in part to the decline in oil prices. In December, the spot price of oil fell from $49 to $43, or 12%. The national average price of gasoline fell to $1.79 per gallon in the final week of December, from $1.94 in late November.

In November, consumer prices also grew by 0.2%, after climbing 0.6% in October. The expected December increase would leave the yearly rate of inflation at 3.5%, from 3.6% in November and 3.2% in October. As energy prices ease, the annual inflation rate should also slow. Headline inflation could show a marked easing depending on the path of global growth and U.S. gasoline demand as the weather warms.

Excluding the volatile energy and food categories, consumer prices most likely grew by 0.2%. In both November and October, monthly core inflation also rose by 0.2%. The yearly rate of core inflation would stand at 2.3%, from 2.2% in November, and 2% in both October and September.


Wednesday, Jan. 19, 8:30 a.m. EST

The housing market isn't losing much steam. Starts probably moved up to an annual pace of 1.9 million in December, according the consensus forecast of economists surveyed by Action Economics. In November, starts did dip to an annual pace of 1.77 million, after hitting a rate of 2.04 million in October, the fourth highest level since 1980.


Wednesday, Jan. 19, 8:30 a.m. EST

Inflation-adjusted weekly earnings of production workers probably increased 0.4% in December. The Labor Dept.'s employment report showed a 0.4% gain in average weekly earnings during December and economists expect no increase in the consumer price index over the same period. In November, inflation adjusted earnings were down by 0.4%, after a 0.4% slip in October. Compared to the same period a year ago, real earnings in November were down 1.6%.


Wednesday, Jan. 19, 2 p.m. EST

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 two-day monetary policy meeting scheduled for February 1st and 2nd. Economists surveyed by Action Economics expect the central bank to lift rates to 2.5%, from 2.25%.


Thursday, Jan. 20, 10 a.m. EST

Federal Reserve Bank of St. Louis President William Poole speaks at the Northeast Mississippi Economic Forecast Conference in Tupelo, Miss.

3:45 p.m. EST Federal Reserve Bank of San Francisco President Janet Yellen gives a speech entitled, "The U.S. Economy and Implications for Monetary Policy" at Financial Women's Association of San Francisco meeting in San Francisco.


Thursday, Jan. 20

Citigroup (C ), Comerica (CMA ), Delta Air Lines (DAL ), Harley-Davidson (HDI ), KLA-Tencor (KLAC ), MBNA (KRB ), Progressive (PGR ), Providian Financial (PVN ), Scientific-Atlanta (SFA ), SunTrust (STI ), UnitedHealth Group (UNH ), Xilinx (XLNX ), and more.


Thursday, Jan. 20, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Jan. 15 probably fell to 345,000. Jobless claims rose to 367,000 in the week ended Jan. 8, after rising to 357,000 in the prior period, from 321,000 in the period ended Jan. 1.

The four-week moving average jumped to 344,000, down from 331,300 in the week ended Jan. 1. During the week of Jan. 1, continuing jobless claims tumbled to 2.63 million, from 2.85 million in the week ended Dec. 25.


Thursday, Jan. 20, 10 a.m. EST

The Conference Board's composite index of leading economic indicators probably improved by 0.2% in December. That is the consensus among economists surveyed by Action Economics.

In November, the index had a small rebound with a monthly increase of 0.2%, after five straight monthly declines. On a yearly basis, the index was up just 0.9% from a year ago in November, after peaking at 4.9% in March and April. The Conference Board says the recent soft patch is not an indication that economic growth is about to halt, but an indication of a gradual slowdown in its pace.


Thursday, Jan. 20, 12 p.m. EST

The Philadelphia Federal Reserve Bank will release its January survey of business conditions for the mid-Atlantic region. According to the median forecast from Action Economics, the index of general business conditions held at 25.4. The December reading rose to 25.4, after sliding to 20.7 in November, from 28.5 in October.

The indexes for new orders, unfilled orders, and shipments all improved as well. The drop in the inventories reading to -7.5, from -6.1 in November, along with the increase in the unfilled orders index to 7.7, from -1.2, points to a jump in demand that caught manufacturers by surprise.

Similar to the New York Fed's latest factory activity report, respondents to the Philly Fed survey tempered their outlook for the coming six months. The future business activity index eased to 41.2, from 52.1 in November. However, the latest level remains above the long-term average of 36. The December results for new orders, unfilled orders, and shipments were also down.


Friday, Jan. 21, 9:45 a.m. EST

Federal Reserve Bank of Minneapolis President Gary Stern discusses economic issues at the Operation Action UP annual meeting in Marquette, Mich.

9:45 a.m. EST Federal Reserve Board Governor Susan Schmidt Bies gives a speech entitled, "The Economy and Challenges in Retirement Savings," at a monthly meeting of the Charlotte Economics Club in Charlotte, N.C.


Friday, Jan. 21

Alltel (AT ), Automatic Data Processing (ADP ), Huntington Bancshares (HBAN ), KeyCorp (KEY ), United Technologies (UTX ), Weyerhaeuser (WY ), and more.


Friday, Jan. 21, 9:45 a.m. EST

The University of Michigan's Survey Research Center will report to its clients its preliminary reading of consumer sentiment for January. News services will then report the index. The consensus among economists surveyed by Action Economics is for the index to increase a shade to a reading of 97.5. In December, the index ended up at 97.1, up considerably from the November level of 92.8 and 91.7 for October.

Households expect the economic growth will slow next year, but believe their personal finances should improve and gasoline prices should recede, according to the November press release.

Cooper is a senior editor and Business Outlook editor for BusinessWeek in New York

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