Vital Signs for the Week of May 2

On tap: Federal Reserve meeting, April employment data, first-quarter productivity figures, business-activity indexes, and more

By James Mehring

Exactly where is the economy going? The latest data show it cooled down in the first quarter, as prices kept creeping higher. What's more, there were some signs that businesses and consumers have gotten a little more cautious.

Economists will be looking at the next batch of data to verify whether or not the economy really is entering another soft patch. Tops among the list will be the April labor report. The consensus view is that another 175,000 new jobs were added during the month.


  However, after the unexpectedly weak durable goods report on Apr. 27, the national manufacturing activity report from the Institute for Supply Management holds added importance in gauging how the business sector is holding up. It is worth noting that the first-quarter real gross domestic product report really wasn't as weak as the 3.1% annualized increase would suggest. More imports, which are subtracted from GDP, weighed on growth, but strong imports do signal healthy domestic demand.

What's more, there was a sharp -— and most likely temporary -— reversal in business outlays for transportation equipment from the fourth quarter to the first quarter that cut deeply into overall equipment spending.

The weak string of numbers won't stop the Federal Reserve from lifting its fed funds rate when it meets on Tuesday, May 3. Economists surveyed by Action Economics fully expect a quarter-point rate hike, bringing the key fed funds rate to 3%.


 Alan Greenspan and company appear to be focusing more on rising prices than prospects for slower growth. That's why the Fed pays more attention on labor productivity. One reason monetary tightening has been gradual is the ability of companies to squeeze more output from their employees and equipment. Strong productivity growth helps businesses absorb the shock of higher oil and commodity prices, while ratcheting up capital investments and bumping up workers' wages.

Productivity gains typically slow during an expansion because companies add new and less experienced workers. If productivity gains can continue at or above its historical annualized growth rate of 2.2%, as some economists believe, then the Fed has some wiggle room to lift rates gradually. If productivity growth turns out to be slower, costs per unit of output will accelerate, and inflationary risks become even greater. That would force the Fed to be more aggressive.

Here's the weekly economic calendar.


Monday, May 2

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Monday, May 2, 10 a.m. EDT

The Institute for Supply Management's March index of industrial activity is expected to show that factories remain quite busy. The median forecast from Action Economics is for an April reading of 55%. The March index came in at 55.2%, virtually unchanged from February's 55.3%. After topping out at 62.8% in January, 2004, the index has been drifting lower ever since. However, the current levels still indicate improving conditions for manufacturers.

The new orders index improved to 57.1% in March, from 55.8% for February. The number of respondents reporting that order numbers shrank to 14%, from 18% in February, and 22% in January. The production index was virtually unchanged at 56.5% in March, from 56.7% in February. The employment index slowed to 53.3% in March, from 57.4%, indicating that for a 17th straight month more manufacturers than not said they hired workers. However, this index measures the difference between the percentage of employers who hire or fire workers, not the number of workers involved. This explains the difference between the positive readings in the ISM survey and the disappointing factory employment numbers reported by the Labor Dept.


Monday, May 2, 10 a.m. EDT

Construction outlays probably continued to grow. The median forecast from Action Economics is for a March gain of 0.3%. For February, spending rose by 0.4%, driven by 0.7% jump in private residential construction. Overall spending grew 0.6% in January, and 0.9% in December. Compared to the same period a year ago, construction outlays were up by a stout 10%. The latest numbers show scant signs of that the housing industry is feeling the effect of slowly rising interest rates.



Tuesday, May 3

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Tuesday, May 3

April sales of domestic and imported cars and light trucks are expected to have improved slightly to an annual pace of 16.6 million vehicles, according to In March, sales picked up to a pace of 16.8 million, from 16.3 million in February and 16.2 million in January. According to, auto makers have not sweetened incentive packages for April, which may account for the expected retreat in sales.


Tuesday, May 3, 7:45 a.m. EDT

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and Swiss bank UBS, will update buying activity for the week ending Apr. 30. In the week ended Apr. 23, sales dipped 0.3%, after rising 1% in the week ended Apr. 16, and 0.3% in each of the prior two weeks.


Tuesday, May 3, 10 a.m. EDT

Factory orders are expected to have kept growing. Economists surveyed by Action Economics expect new orders in March to fall 1.2%. Orders grew 0.2% in February, after holding steady in January. Based on the March consensus estimate, new orders would be up by an annualized rate of 1.9% in the first quarter. Such a gain would mark the third straight quarter that the pace of orders growth has slowed.

The recently published data on durable goods orders showed a surprising 2.8% drop in March. What's more, the underlying measure of business demand for new equipment didn't look pretty. Core durable goods orders, which strip out the defense sector and private aircraft orders, tumbled 4.7%, following a 2.5% dip in February. Durable goods orders are known to be quite volatile. However, if orders also show similar weakness in April, it could be considered a confirmation that high oil prices and concerns about the health of the economy have begun to wear on businesses.


Tuesday, May 3, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the fourth and final fiscal week of April, ending Apr. 30. Over the first three weeks, sales were off by 3.8%, compared to the same period in March. For the full month of March, sales were down 0.7% compared to all of February.



Wednesday, May 4, 5:30 p.m. EDT

Senate Banking Committee Chairman Richard Shelby to speak about Government Sponsored Enterprise (GSE) reforms at a Market News International conference in New York City.


Wednesday, May 4, 5:30 p.m. EDT

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Wednesday, May 4, 7 a.m. EDT

The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Apr. 29. For the week ended Apr. 22, the purchase index was 482, the highest level of the year. In the week ended Apr. 15 the index eased down to 466.7, from 474.5 in the prior period. The four-week moving average rose to 464.5, from 459.5 for the week ended Apr. 8.

The average rate on a conventional 30-year mortgage, according to HSH Associates, fell a little more. In the week ended Apr. 22 the rate edged down to 5.92%, from 6.04% for the week ended Apr. 15.

The MBA's refi index turned back around. In the period of Apr. 22, the index hit 2052.5, from 1870 for the prior week, and 1899.6 in the week ended Apr. 8. The four-week moving average rebounded to 1905.2, from 1856.4 in the week ended Apr. 15.


Wednesday, May 4, 10 a.m. EDT

The Institute for Supply Management releases its April index of business activity in the mostly services, non-manufacturing sector. Economists surveyed by Action Economics are forecasting an index reading of 61.1%. The March index shot up to 63.1%, up from 59.8% in February, and 59.2% in January.

The new orders index strengthened to 62.1% in February, from 61.6% in the previous period. The high new orders level is fueling both inventory growth and backlogged orders. The inventory index edged up to 52.5%, from 52% in February. Unfilled orders shot up to a reading of 56.5%, from 51.5% in February. However, the March report showed a sizeable slowdown in the pace of export order growth. After hitting 56% in February, the March index fell to 51.5%. The 50% level is the inflection point between growing and falling orders.



Thursday, May 5, 9:15 a.m. EDT

Federal Reserve Bank of Chicago President Michael Moskow makes welcoming remarks at the Federal Reserve Bank of Chicago's Bank in Chicago.

9:30 a.m. EDT

Federal Reserve Board Chairman Alan Greenspan gives the keynote address via satellite at the Federal Reserve Bank of Chicago's Bank Structure Conference in Chicago.

2:55 p.m. EDT

Federal Reserve Board Governor Mark Olson takes part in a panel discussion on the art of the retail loan at the Federal Reserve Bank of Chicago's Bank Structure Conference in Chicago.


Thursday, May 5

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Thursday, May 5

The International Council of Shopping Centers will release its same-store sales figures for major U.S. chain retailers. According to the ICSC, April sales probably improved 2% from a year ago. The results will likely reflect a negative impact from an early Easter holiday. At the same time cool March weather that dampened sales could push purchases for spring and summer clothing to April. In March, sales posted a 4.1% increase from the same month a year ago after a 4.7% rise in February.


Thursday, May 5, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended Apr. 23 most likely inched up to 325,000. Jobless claims bounced back to 320,000 for the week ended Apr. 23, after falling to a revised, ten-week low of 299,000 for the week ended Apr. 16. In the previous period, initial claims stood at 332,000.

The four-week moving average eased down to 323,000, from 331,000 for the week of Apr. 9. For the week of Apr. 16, continuing jobless claims plunged to 2.56 million, the lowest level since March, 2001. In the prior week continuing claims stood at 2.63 million.


Thursday, May 5, 8:30 a.m. EDT

Productivity growth in the fourth quarter, measured as output per hour worked, probably held up at a respectable annualized growth rate of 1.7%. That's the median estimate of economists queried by Action Economics. In the fourth quarter, nonfarm productivity was up by 2.1%, after a third quarter increase of 1.3%, and a second quarter gain of 3.9%. Productivity growth for the full year of 2004 was 4%, after a 4.4% improvement in 2003.

Fourth-quarter unit labor costs most likely were up 2%, following a 1.3% gain in the fourth quarter, a 4% jump during the third quarter, and a 1.9% gain in the second quarter. Costs nudged up by 0.4% for all of 2004, after declining in both 2002 and 2003. Compared to the same quarter in the prior year, unit labor costs were up 1.4% for a second straight period in the final quarter of 2004.

Unit labor costs could accelerate this year. While there is still a bit of slack in the general labor market, employers in some industries are hard pressed to find qualified workers. Such bottlenecks could push up wages. In addition, benefit costs are still running faster than inflation.



Friday, May 6, 8:30 a.m. EDT

Economists expect a small improvement in the labor market. The median forecast of those surveyed by Action Economics is for an increase of 175,000 jobs in April. In March, employment grew by 110,000, after a jump of 243,000 in February and a January increase of 124,000 in January. The unemployment rate is not expected to budge from the March level of 5.2%. In February, the jobless rate stood at 5.4% in February.

Despite positive signs from national and regional manufacturing activity surveys, economists queried by Action Economics are forecasting no change in factory payrolls. In March, manufacturers cut 8,000 jobs, after adding 15,000 workers in February.

The average workweek probably held steady at 33.7 hours for a sixth consecutive month. Meanwhile, gains in average hourly earnings are forecast to grow by 0.3% for a second straight period.


Friday, May 6, 3 p.m. EDT

Consumers probably tacked on another $5.9 billion in debt in March. That's the consensus estimate among economists queried by Action Economics. In February, outstanding debt rose by $5.5 billion, on top of a January jump of $11.7 billion. For all of 2004 consumer credit grew by $98.3 billion, following an increase of $87.1 billion in 2003.

Mehring is an economics editor for BusinessWeek in New York

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