Vital Signs for the Week of Feb. 28

On tap this week: February jobs data, January reports on personal income, factory orders and vehicle sales, and more

By James Mehring

The U.S. economy is rolling along and should continue to do so. Despite widespread expectations that business spending will take over as the primary engine of growth this year, consumers should proceed to do their fair share.

The latest data on economic growth for the final quarter of 2004 showed an annualized increase of 3.8%, higher than the initial estimate of 3.1%. Although Christmas sales got off to a slow start and business spending hit an annualized rate of 14% over the quarter, consumers still managed to account for about three-quarters of the growth in the fourth quarter.


  Businesses are likely to account for a bigger share of growth in the coming quarters. The January factory orders and national factory activity index from the Institute for Supply Management should show businesses are adding to their capital investment. At the same time, improved job and wage growth will provide more fuel for consumer spending. Indeed, economists surveyed by Action Economics expect an increase in February payrolls of 219,000.

The labor market tea leaves read favorably. Jobless claims over the past three weeks have fallen, bringing the four-week moving average to its lowest level since late 2000. The help-wanted index, a measure of help-wanted advertising in newspapers, has risen two straight months and the increase in January occurred across the country.

Lastly, the February consumer confidence report showed respondents are feeling less pessimistic about the job market. Those who said jobs are plentiful held steady at a respectable 20.9%. The number of persons claiming jobs were hard to get fell to 22.6%, the lowest level since mid-2002.


  Besides more jobs, personal income continues to outpace inflation. That is one reason why oil at $50 per barrel hasn't caused spending to grind to a halt. The monthly comparison of January personal income figures to December will look poor due to the huge Microsoft (MSFT ) dividend payout on Dec. 2. However, comparing January personal income levels to the November figures should show a solid increase.

As the year progresses, more Americans will be heading back to work, while household incomes improve. The combination should keep driving consumers to the malls and help the economy grow at a solid clip.

Here's the weekly economic calendar:


Monday, Feb. 28, 8:30 a.m. EST

Federal Reserve Board Governor Mark Olson speaks about the U.S. economy and the financial services industry before the Credit Union National Association in Washington, D.C.


Monday, Feb. 28

H.J. Heinz (HNZ ), Nicor (GAS ), Tiffany & Co. (TIF ), and more.


Monday, Feb. 28, 8:30 a.m. EST

Some payback from the Microsoft dividend in December will leave personal income lower in January. Economists queried by Action Economics LLC say personal income probably fell by 2.5%. The Microsoft dividend payout of $3 per share on Dec. 2 led to a tremendous 3.7% monthly increase. The total payout from the software giant was around $32 billion. Based on the forecast, when all is said and done, the monthly tally of income will end up 1% higher than in November.

Compared to a year ago, income was up by 8.6% in December, and would post a 5.4% increase in January if the median estimate proves correct.

Outlays on goods and services probably moved up by 0.1%, following a 0.8% gain in December, a 0.4% rise in November, and another 0.8% jump over October. The yearly growth rate of consumer spending stood at 6.4% for December, from 6.3% for November. Even with the more moderate gain anticipated for January, spending would still be 5.9% above last January.

The December price index of personal consumption expenditures fell 0.1% in December, after gains of 0.2% in November, and 0.4% in October. The Fed prefers to look at the personal consumption expenditures price indexes, particularly the core index which strips out food and energy, to get a reading on inflation. Compared to the same month a year earlier, prices were up 2.4% during December. Excluding food and energy, December prices were up by 1.5% from a year ago.


Monday, Feb. 28, 10 a.m. EST

New single-family homes sales probably remained brisk in January. According to economists polled by Action Economics, new home sales hit an annual pace of 1.13 million. During November and December, sales ran at an annual pace of 1.1 million.

There are no signs that the Federal Reserve will change its current quarter-point rate hikes at each monetary policy meeting. As a result, some households are trying to purchase a house now in order to lock in a lower mortgage rate. In addition, the labor market is gradually improving. The combination should continue to help home sales for the time being.


Monday, Feb. 28, 10 a.m. EST

The Chicago-area purchasing managers' index of industrial activity in the Midwest probably retreated a little in February. The median forecast of economists surveyed by Action Economics is for a reading of 60.4, after reaching to 62.4 in January, from 61.9 in December. Even thought the February forecast reading would be the lowest since August, it would still indicate that activity is brisk.

In the January survey, the other indexes were largely upbeat. The production and new orders indexes each climbed a little higher. Backlogged orders continued to climb, but at a slower clip than in December. The employment index also indicated a small rebound in the job market with the January index reaching 52.8, after the December index fell to 51.1, from 58.9 in November.



Tuesday, Mar. 1, 8:30 a.m. EST

Federal Reserve Bank of Chicago President Michael Moskow speaks about job losses before the National Association of State Workforce Agencies in Washington, D.C.

2 p.m. EST

Federal Reserve Bank of Philadelphia President Anthony Santomero gives a speech entitled "Lessons Learned from the Recent Business Cycle" at the American Academy, in Berlin, Germany

4 p.m. EST

Federal Reserve Bank of Richmond President Jeffrey Lacker discusses inflation targeting and the conduct of monetary policy as part of the Watts Lecture Series at the University of Richmond in Richmond, Va.


Tuesday, Mar. 1

Marsh & McLennan (MMC ), Pall Corp. (PLL ), Progressive (PGR ), and more.


Tuesday, Mar. 1

Sales of domestic and imported cars and light trucks over the course of February are expected to have improved slightly to an annual pace of 16.5 million vehicles, according to In January, sales tumbled to an annual rate of 16.2 million. However, consumer and producer price data from the government showed that auto prices rose during the month, indicating a pause in heavy discounting. In December, new car sales hit a pace of 18.4 million, after a November rate of 16.4 million.


Tuesday, Mar. 1, 7:45 a.m. EST

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ending Feb. 26. In the week ended Feb. 19, sales retreated by 0.1%, following a 0.1% increase in the previous period, and a 2.2% surge in the week ended Feb. 5.


Tuesday, Mar. 1, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the fourth and final fiscal week of February, ending Feb. 26. Over the first three weeks, ended Feb. 19, sales were up 0.7% compared to the same period over January. During the full month of January, sales finished 0.9% above December.


Tuesday, Mar. 1, 10 a.m. EST

The Institute for Supply Management's February index of industrial activity probably remained strong. The median forecast from Action Economics is for a February reading of 57%. In January, the index came in at 56.4%, after nudging down to 57.3% in December, from 57.6% in November.

The revised new orders index show a sizeable decline in January, falling to 56.5%, from 62.6% in December and 60.7% in November. The year-end expiration of the bonus depreciation provision may have been a factor in the January retreat. Companies were expected to move up orders for capital equipment in order to take advantage of the accelerated depreciation schedule.

At the same time, the production and employment indexes improved in January. Increased output and a slowdown in new orders may have been a reason for the 50.5% reading in the January backlogged orders index. In December, the index tracking unfilled orders was at 54%.


Tuesday, Mar. 1, 10 a.m. EST

Construction outlays probably grew some more in January. The median forecast by economists queried by Action Economics is for a 0.4% increase. Spending in December jumped by 1.1%, the biggest monthly gain since April. Outlays over November rose by 0.3%, after a 0.4% gain over October.

Most notable in the December report was the 0.7% rebound in private residential spending. Residential construction spending had fallen the previous two months. However, most of the December gain came from a 3.1% jump in outlays for new multifamily residential buildings.

Outside of housing, manufacturers have picked up their pace of spending. Although the increase is coming off of a very low level, construction spending within the factory sector was up by 25.2% in December. After falling for five straight years, spending by manufacturers rose by 1.9% for all of 2004.



Wednesday, Mar. 2, 10 a.m. EST

Federal Reserve Board Chairman Alan Greenspan testifies about the economy before the House Budget Committee in Washington, D.C.

7:30 p.m. EST

Federal Reserve Board Governor Edward Gramlich gives a speech on the U.S. national savings rate at Dickinson College in Carlisle, Pa.

9:05 p.m. EST

Federal Reserve Bank of San Francisco President Janet Yellen discusses the U.S. economy with the University of California Berkeley Alumni Association in San Francisco.


Wednesday, Mar. 2

AutoZone (AZO ), Costco (COST ), Liz Claiborne (LIZ ), and more.


Wednesday, Mar. 2, 7 a.m. EST

The Mortgage Bankers Association releases its tally of mortgage applications for both homebuying and refinancing for the week ending Feb. 25. In the week ended Feb. 18, the purchase index fell for a second straight week, to 417.8, from 423.3 in the previous week, and 444.6 over the period ended Feb. 4. The latest reading of the four-week moving average slipped to 431.5, from 436.8 for the week ended Feb. 11.

The average rate on a conventional 30-year mortgage, according to HSH Associates, bounced back up to 5.71%, in the week ended Feb. 18, from 5.66%.

The MBA's refi index edged up to 2532, from 2530.1 during the week of Feb. 11 and 2430.7 over the week of Feb. 4. Even so, the four-week moving average jumped to 2436.7, from 2286.9 in the week ended Feb. 11.



Thursday, Mar. 3

Progress Energy (PGN ), and more.


Thursday, Mar. 3

The International Council of Shopping Centers will release its February same-store sales figures for major U.S. chain retailers. The latest weekly sales report by the ICSC states overall February sales probably improved by 2.5% from a year ago. The moderate pace of yearly growth for February is due in part to a tough year-ago comparison when sales surged by 6.7%. In January, sales rose 3.6%, after a 2.7% gain in December and a 1.7% improvement in November.


Thursday, Mar. 3, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Feb. 26 probably held at 312,000. Jobless claims moved up to 312,000, after edging down to a revised 303,000 in the prior week, from 304,000 in the week ended Feb. 5. The 303,000 tally over the period ended Feb. 5 was the lowest since October, 2000.

The four-week moving average fell to 308,800, from 312,000 during the week ended Feb. 12, and 315,800 over the previous week. During the week of Feb. 12, continuing jobless claims dropped to 2.65 million, from 2.71 million in the previous period.


Thursday, Mar. 3, 8:30 a.m. EST

Productivity growth in the fourth quarter, measured as output per hour worked, will probably be revised upwards. According to Action Economics, the revised annualized growth rate will be 1.7%, after an initial increase of 0.8%. In the third quarter, productivity was up by 1.8%, after a second quarter gain of 3.9%, and a 3.7% increase in the first quarter.

The improved productivity growth means a downward revision for unit labor costs is probable. The forecast from Action Economics is for an annualized increase of 1.9%. The original estimate for the fourth quarter was 2.3%. In the third quarter, unit labor costs rose by a revised 1.6%, following a 1.9% rise in the second quarter, and a 1.6% fall in the first quarter.

Unit labor costs could accelerate a little more this year. Wage growth remains strong, and the job market is expected to improve, if at a moderate pace. The combination likely spells some further slowdown in the growth rate of productivity and continued pickup in labor costs.


Thursday, Mar. 3, 10 a.m. EST

The Institute for Supply Management releases its February index of business activity in the mostly services, non-manufacturing sector. Action Economics expects the index to come in at 60%. The January index fell to 59.2%, after a jump to 63.9% in December, from 61.9% in November.

The rest of the indexes were generally weaker. The new orders index retreated to 60.5%, after a small gain to 61.3% in December, from 60.4% in November. The January inventories reading fell to 49.5%, from 56% in the prior month. An index value below 50% indicates that inventory levels fell. The index tracking backlogged orders also fell below 50%, the first such occurrence in 21 months, while the pace of hiring slowed.



Friday, Mar. 4, 1:30 p.m. EST

Federal Reserve Bank of Chicago President Michael Moskow gives a speech on women and minority-owned business access to capital in Chicago.

1:50 p.m. EST

Federal Reserve Bank of Minneapolis President Gary Stern gives a speech entitled "Business Conditions and Prospects: Good, Bad, or Indifferent?" at the Investment Analysts Society Conference in Chicago.


Friday, Mar. 4, 8:30 a.m. EST

Although it sounds like a broken record, economists believe job growth improved in February. The consensus among those surveyed by Action Economics is for an increase of 219,000 in during February. During January, payrolls grew by 146,000, after an increase of 133,000 in December, and 132,000 in November. The forecast gain in February payrolls is not expected to push the unemployment rate below the present level of 5.2%.

The latest forecast calls for factory payrolls to grow by just 5,000. Despite some indications in the national and regional factory activity figures that factories are hiring workers, the Labor Dept. data shows otherwise. In January, factory payrolls tumbled by 25,000, after monthly declines of 7,000 in both December and November.

The average workweek probably edged back up to 33.8 hours, after easing to 33.7 hours in the prior report, from 33.8 hours in December. Meanwhile, gains in average hourly earnings are forecast to grow by 0.2% for a third straight month.


Friday, Mar. 4, 10 a.m. EST

Factory orders probably grew at a healthy clip in January, especially when the volatile aircraft sector is excluded. Economists surveyed by Action Economics expect new orders to fall by 0.2% in January. Orders rose by 0.3% in December after a 1.4% leap over November and a 0.9% gain in October.

Published data on new orders for durable goods showed a 0.9% drop for January. However, a 27.1% tumble in nondefense aircraft orders was largely to blame. Core durable goods orders, which strip out defense spending and aircraft orders, showed a stout 2.9% gain, after increases of 3.3% and 1.2% in December and November, respectively.


Friday, Mar. 4, 9:45 a.m. EST

The University of Michigan's Survey Research Center will report to its clients its final reading of consumer sentiment for February. News services will then report the index. The consensus among economists surveyed by Action Economics is for the index to inch up to 94.5. The preliminary reading was down from the final January level of 95.5, and the December reading of 97.1.

However, there is a divergence in the underlying components of the index. In January, the current conditions reading jumped to 110.9, from 106.7. At the same time, the future expectations index dropped to 85.7, from 90.9 in December. The Conference Board's consumer confidence index also showed a similar deviation in the February data. Even so, the growing sense of confidence in how the economy is presently performing bodes well for household spending.

Mehring is an economics editor for BusinessWeek in New York

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