business

Vital Signs for the Week of Mar. 14

On tap: February data on retail sales and industrial production, current account figures, March regional factory activity surveys, and more

By James Mehring

The first quarter is almost over, and the U.S. economy keeps rolling along. Both consumers and businesses continue to spend. Some economists believe real gross domestic product could post 4% annualized growth for the period. But risks are emerging as spring approaches.

Households hit stores in full force during February. The weekly Instinet Redbook retail sales report showed February sales were up 2% from January. Economists surveyed by Action Economics expect the Commerce Dept.'s monthly retail sales data to show a 0.5% gain.

RISING INVENTORIES.

  Consumers are getting a boost from what appears to be an upshift in hiring. The better-than-anticipated gains in nonfarm payrolls over February confirmed what earlier data were signaling.

The Commerce Dept.'s latest quarterly flow of funds report (a detailed look at the country's assets and liabilities) showed household net worth surged to an annualized rate of 17.7% in the fourth quarter. On top of that, personal income growth remains firm as well. That combination should continue to make consumers feel more confident about fuel spending.

Businesses are also quite busy. Industrial production is forecast to have expanded in February. January numbers showed business investment remained strong. Corporate America is using its hoards of cash to make more capital investments, and there are few reasons to believe the need to keep upgrading and expanding capacity will soon recede. At the same time, low inventory-to-sales levels indicate business inventories will keep rising.

EVEN BIGGER DRAG.

  Nonetheless, the odds against 4% growth in the second quarter appear to be building. Oil prices are lurking just below the record level of $55.17 hit back in October. And gasoline prices have already broken the $2 per gallon mark. These gains are being driven by global economic growth and the resulting thirst for oil.

Much like the second quarter of last year, high energy prices could siphon away dollars originally destined for purchases of goods and services. Indeed, the latest weekly retail sales data may be showing the early signs of such an effect. If oil prices keep drifting higher through the heavy driving season, the upshot could be an even bigger drag on the economy. Consumers and businesses alike may begin to put off planned purchases and just hold on to their money.

Here's the weekly economic calendar.

MEETING OF NOTE

Monday, Mar. 14, 11 a.m. EST

Federal Reserve Board Governor Susan Schmidt Bies gives a speech entitled "Key Trends and Developments in the Regulation and Supervision of Internationally Active Banking/Financial Groups" at the annual conference of the Institute of International Bankers in Washington, D.C.

1:30 p.m. EST

Federal Reserve Bank of San Francisco President Janet Yellen gives a speech entitled "The Economy, The Banking Sector, and Issues on the Supervisory Radar Screen: A View from the 12th Federal Reserve District" at the Western Independent Bankers Association Annual Conference in Kauai, Hawaii.

---------------------

MEETINGS OF NOTE

Tuesday, Mar. 15, 10 a.m. EST

Federal Reserve Board Chairman Alan Greenspan testifies on Social Security to the Senate Special Committee on Aging in Washington, D.C.

2 p.m. EST

U.S. Treasury Secretary John Snow testifies on international financial systems before the House Financial Services Committee in Washington, D.C.

ICSC-UBS STORE SALES

Tuesday, Mar. 15, 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 Mar. 12. In the week ended Mar. 5, sales slipped 0.4%, after a 1.5% jump during the week of Feb. 26, and a 0.1% slip in the previous week.

RETAIL SALES

Tuesday, Mar. 15, 8:30 a.m. EST

Retail sales probably bounced back in February. Economists surveyed by Action Economics are expecting, on average, a 0.6% increase for the month. In January, sales fell 0.3%, after a 1.1% jump in December and no change in November. January sales stalled on poor vehicle sales results. Motor vehicle and parts sales were down 3.3% in January, with the number of units sold reported at an annual pace of 16.2 million. In December, the pace was 18.4 million. Light vehicle sales came in at an annual pace of 16.3 million during February.

Excluding autos, the consensus forecast is a 0.8% gain in February retail sales. In January, ex-auto sales grew 0.6%, after a 0.3% in December, and a 0.5% rise over November.

BUSINESS INVENTORIES

Tuesday, Mar. 15, 8:30 a.m. EST

Inventories held by manufacturers, wholesalers, and retailers are expected to have risen 0.8% in January. That's the median estimate of economists queried by Action Economics. Factory inventories were already reported to have swelled by 1.3% over January, while wholesale inventories climbed 1.1%. Combining wholesale and factory figures, January inventories are up 1.2% so far. Total business inventories expanded by 0.2% in December, after a 1.1% jump in November, and a 0.4% rise in October.

Despite the healthy gains in inventory levels, inventory-to-sales ratios aren't climbing. This trend is an indication that inventories are rising because businesses need to meet strong demand. Therefore, inventories are likely to keep growing at a solid clip as companies try to maintain the stock levels necessary to keep up with demand.

EMPIRE STATE MANUFACTURING SURVEY

Tuesday, Mar. 15, 8:30 a.m. EST

The New York Federal Reserve Bank will release its latest survey of business conditions for manufacturers in the New York Fed district. According to economists surveyed by Action Economics, the March headline manufacturing activity index probably nudged up to 20. The February reading fell to 19.2, from 20.1 in January, and 27.1 in December.

The shipments index picked up the pace with a February reading of 33.3, compared to 26.2 in January. However, the new orders index implied a deceleration in growth, with a February level of 17.3 vs. 21 in January and 36.1 in December. Similar to other regional manufacturing activity indexes, the unfilled orders index sank. The February reading was -12.2, after easing to 5.7 in January. The result implies manufacturers are starting to catch up with orders and are whittling down their order backlogs.

Expectations for the coming six months slipped for a fifth straight month, but were still upbeat. The February index tracking general business conditions stood at 40, from 42.2 in January. The historical average for the index is 51.7. The new orders, shipments, and unfilled orders indexes all declined.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Mar. 15, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the second fiscal week of March, ending Mar. 12. For the week ended Mar. 5, sales were down 1% from the same period in February. For the entire month of February, retailers reported a 2% increase in sales compared to January.

HOME BUILDERS SURVEY

Tuesday, Mar. 15, 1 p.m. EST

The National Association of Home Builders and Wells Fargo Bank issue the monthly survey results for March. The report updates housing market conditions by measuring builders' assessments of current sales, buyer traffic through model homes, and expected demand. In February, the activity index fell to 68, from 70 in January, and 71 in the prior month. Winter storms and other inclement weather were blamed for the February decline. Overall, however, the figures still build a solid picture for the housing market.

The index tracking single-family home sales dipped to 74, from 77 in January and 78 in December. Expectations for sales in the coming six months remained at a reading of 78, after slipping to that level from 80 in December. The index for prospective buyer traffic held at 50 for a second straight month, from 52 in December.

EARNINGS REPORTS

Tuesday, Mar. 15

Albertson's (ABS ), King Pharmaceuticals (KG ), and more.

---------------------

MORTGAGE APPLICATIONS

Wednesday, Mar. 16, 7 a.m. EST

The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Mar. 11. In the week ended Mar. 4, the purchase index climbed to 451.7. In the previous period, the applications index rebounded to 440, from 417.8 over the period ended Feb. 18. The latest reading of the four-week moving average edged up to 433.2, from 431.4 during the week ended Feb. 25.

The average rate on a conventional 30-year mortgage, according to HSH Associates, shot up to 5.92%, in the week ended Mar. 4, from 5.79%.

The MBA's refi index fell to 2176.8, from 2281.1 during the week of Feb. 25 and 2532 over the week of Feb. 18. As a result, the four-week moving average slipped to 2380, from 2443.5 in the week ended Feb. 25.

CURRENT ACCOUNT

Wednesday, Mar. 16, 8:30 a.m. EST

The current account deficit -- a kind of cash flow statement of U.S. international business, including trade in goods and services, net investment income, and foreign transfers -- probably stood at $184 billion over the fourth quarter, according to Action Economics. In the third quarter, the current account deficit was $164.7 billion, after a $164.4 billion deficit in the second quarter, and a $147.2 billion deficit in the first quarter of 2004.

The U.S. trade gap in goods and services stood at $171.1 billion, after ringing up a $155.6 billion trade deficit in the third quarter.

The consensus forecast of a $184 billion deficit would stand at 6.1% of the gross domestic product. In the third quarter the level was 5.6% of GDP. After floating between 1% to 2% of GDP through the mid-1990s, the current account gap started its upward March in 1998. There are scant signs of any shift in the present trend.

NEW RESIDENTIAL CONSTRUCTION

Wednesday, Mar. 16, 8:30 a.m. EST

Housing starts are expected to have edged a little lower in February. The annual rate for the month is forecast at 2.1 million, according to economists surveyed by Action Economics. In January, housing starts hit a seasonally adjusted record pace of 2.16 million, from 2.06 million in December, and 1.81 in November.

INDUSTRIAL PRODUCTION

Wednesday, Mar. 16, 9:15 a.m. EST

U.S. industrial production probably grew by 0.3% in February, according to the consensus forecast by Action Economics. During January, output was flat, after a strong 0.7% gain in December, and a 0.1% increase during November. The weakness during January was concentrated in output by utilities, which tumbled 3% on account of warmer weather. A similar decline in February looks unlikely.

Factory production posted a 0.4% rise over the month. The Fed's report suggests businesses are still spending. Production of computers jumped by 1.4% in January, and output in the business equipment category, which includes transportation and industrial items, grew by 1.4% as well.

The average operating rate for all industries most likely inched up to 79.2%, from 79% for January, 79.1% in December, and 78.6% in November.

EARNINGS REPORTS

Wednesday, Mar. 16

Bear Stearns (BSC ), Worthington Industries (WOR ), and more.

---------------------

JOBLESS CLAIMS

Thursday, Mar. 17, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Mar. 12 probably retreated back to 310,000. Jobless claims moved up to 327,000 in the week ended Mar. 5, from 310,000 in each of the prior two weeks.

The four-week moving average was 312,500 in the week ended Mar. 5, from 306,800 during the week ended Feb. 26. During the week of Feb. 26, continuing jobless claims rose to 2.7 million, from 2.66 million in the prior week.

LEADING INDICATORS

Thursday, Mar. 17, 10 a.m. EST

The Conference Board's composite index of leading economic indicators most likely rose by 0.1% in February. That is the median forecast by economists queried by Action Economics. During January, the index slipped by 0.3%. However, previous five months were revised higher. In both December and November, the index rose by 0.3%, following three consecutive monthly drops of 0.3%. On a yearly basis, the index was up 0.8%, compared to the same period a year ago. The yearly rate in December was revised up to a gain of 1.4% vs. the original 1% increase.

PHILADELPHIA FED SURVEY

Thursday, Mar. 17, 12 p.m. EST

The Philadelphia Federal Reserve Bank will issue its March survey of business conditions for the mid-Atlantic region. Economists surveyed by Action Economics expect a mild decline, with the index of general business conditions anticipated at 20. The February index rebounded to 23.9, after dropping to 13.2 in December, from 25.4 in November.

The indexes tracking new orders, unfilled orders, and shipments all improved. The latest survey showed that backlogged orders are still falling, but at a slower rate. At the same time respondents indicated a slowdown in hiring and intent to lengthen the average workweek.

The index tracking manufacturers' outlook for the coming six months didn't change much. The future business activity index rose to 26.5, from 25.5 in January. The pace of new orders is expected to slow and respondents said they believe unfilled orders will grow little over the period.

EARNINGS REPORTS

Thursday, Mar. 17

Adobe Systems (ADBE ), Cintas (CTAS ), Dollar General (DG ), Goldman Sachs (GS ), Jabil Circuit (JBL ), Nike (NKE ), Tektronix (TEK ), and more.

---------------------

MEETINGS OF NOTE

Friday, Mar. 18, 12 p.m. EST

Federal Reserve Board Chairman Alan Greenspan speaks at the National Community Reinvestment Coalition's annual conference in Washington, D.C.

12:30 p.m. EST Congressional Budget Office Director Douglas Holtz-Akin speaks about Social Security reform before the National Economists Club in Washington, D.C.

IMPORT AND EXPORT PRICES

Friday, Mar. 18, 8:30 a.m. EST

Import prices probably posted a sizeable increase in February. Economists surveyed by Action Economics expect a 0.6% increase in import prices during February. January import prices jumped 0.9%, after a December plunge of 1.4%, and a November decline of 0.3%.

Petroleum prices have had a large impact on the overall import price index. Excluding petroleum, import prices posted a smaller 0.2% increase for January, following a 0.2% gain in December, and a 0.9% increase in November.

Compared to the same month a year ago, overall import prices slowed to a 6% rate, from a yearly rate of 6.7% in December, and 9% in November. Excluding energy, the yearly gain was 3%, from 3.7% in December.

February export prices very likely rose by 0.3%. In January, export prices jumped 0.7%, after a 0.2% rise for December, and a 0.3% increase in November. Compared to a year ago, export prices were up 4% over January, vs. a 4.1% yearly pace in December, and a November 4.2% increase.

Export prices for agricultural commodities continue to slide, off 5.2% from a year ago in January. The yearly price increase for capital goods was 1% in January, after a 0.7% increase in December. Price gains for consumer goods exports picked up to a yearly pace of 1.6%, from 1.3% in December.

CONSUMER SENTIMENT INDEX

Friday, Mar. 18, 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 March. News services will then report the index. Economists surveyed by Action Economics, on average, expect the index to improve to 95, from 94.1 in February, but remain below the 95.5 reading of January.

There is a divergence among the components, with consumers reporting more optimism about current conditions than about prospects six months from now. In February the current conditions index stood at 109.2, after hitting a four-year high of 110.9 in January. However the future expectations index is near its 20-year average. In February the index slipped to 84.4, from 85.7 in January, and 90.9 in December.

Mehring is an economics editor for BusinessWeek in New York

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