business

Vital Signs for the Week of Jan. 2

On tap: December jobs and vehicle sales data, national business activity indexes, construction spending for November, and more

The U.S. economy is entering the New Year in good health. While economic growth in the fourth quarter of 2005 will end up being slower than in recent quarters, the latest data indicate that economic activity closed the year on an upswing. The financial markets are expecting more good news during the first week of 2006.

That's why investors and the Federal Reserve will be very interested in the December employment report. Economists expect another decent increase of 200,000 jobs for December, with another small increase in manufacturing payrolls as well. Solid job growth would be good news for consumer spending in early 2006, especially since weak vehicle sales early in the fourth quarter will make consumer spending growth for the quarter as a whole look soft.

Investors will also be analyzing the implications of good jobs data on monetary policy. In the Fed's Dec.13 post-meeting press release, the central bank said that "possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures." Steady job growth north of 200,000 in the coming months could put upward pressure on wages and inflation.

Increased capacity utilization of plants and equipment is also important. The December factory activity index from the Institute for Supply Management is expected to show manufacturers still see increasing demand. Also, the upcoming November manufacturing data on new and unfilled orders will give the financial markets an update on how busy factories will be in the coming months.

Also keep an eye on the December figures for chain store sales and vehicle sales for clues on consumer-spending momentum. Auto sales are expected to have rebounded after U.S. auto makers introduced a new round of incentives, and the chain store sales numbers will show how well retailers did this holiday shopping season.

Here's the weekly economic calendar.

All financial markets will be closed on Monday, Jan. 2 in observance of the New Year's holiday.

EARNINGS REPORTS

Tuesday, Jan. 3

Walgreen, and more.

FOMC MINUTES

Tuesday, Jan. 3, 2 p.m. EST

The Federal Reserve will release the minutes of the Open Market Committee meeting held on Dec. 13. The Fed now releases the minutes three weeks after a monetary policy meeting.

The post-meeting press release on Dec. 13 revealed some changes in how the central bank will handle monetary policy in 2006. In recognition that the recent run of strong economic growth is drawing down on untapped labor and capital capacity, the Fed stated "possible increases in resource utilization" could produce inflationary pressures." In addition, the Fed says it is still keeping an eye on energy prices. As a result, further rate hikes are likely. The minutes may provide some additional details regarding the shift in focus.

Fed watchers expect the central bank will raise rates by 25 basis points at both the January and March monetary policy meetings and then pause at a Fed funds rate of 4.75%.

ISM SURVEY

Tuesday, Jan. 3, 10 a.m. EST

The Institute for Supply Management's December index of industrial activity is forecast to have edged lower for a third straight month. The consensus estimate from Action Economics is for a reading of 57.4%. The November index was 58.1%, after an October reading of 59.1%, and 59.4% in September.

The November results showed production, new orders, and unfilled orders increased at slower clips, although all three indexes remained at historically healthy levels. The overall index and the components indicate that the manufacturing sector is settling down into a nice pace of activity that continues to soak up unused capacity.

In addition, the November employment index hit 56.6%, from 55% in October, implying additional hiring by manufacturers. Economists agree, with expectations that the December jobs data will show an increase in factory payrolls.

CONSTRUCTION SPENDING

Tuesday, Jan. 3, 10 a.m. EST

Construction outlays are expected to have grown by 0.6% for a second consecutive month in November. That's the median forecast from Action Economics. Prior to the October 0.7% rise, construction spending grew 0.2% in September, after rising 1.2% in August. Compared with the same period a year ago, October construction outlays were up 7.9%

Private residential construction has held up well this year. Residential outlays were up 0.6% in October, after a 0.7% gain in September. Public outlays surged 1.9%, after a September fall of 0.5%. Public construction spending should remain strong in the next quarter as funds go to rebuilding the Gulf Coast region.

EARNINGS REPORTS

Wednesday, Jan. 4

Monsanto, and more.

VEHICLE SALES

Wednesday, Jan. 4

Vehicle sales probably improved a little more during December. According to WardsAuto.com, December sales probably reached an annualized pace of 17.2 million. Light vehicle sales moved up to a rate of 15.7 million in November, from 14.7 million units in October, the weakest pace since August of 1998. The sluggish vehicle sales in the fourth quarter will make overall consumer spending figures look soft.

MORTGAGE APPLICATIONS

Wednesday, Jan. 4, 7 a.m. EST

The Mortgage Bankers Association releases its numbers on mortgage applications for both home buying and refinancing for the week ending Dec. 30. The purchase index shrank to 432.9 for the week ended Dec. 23, from 453.1 in the previous week, and 477.9 in the week ended Dec. 9. The four-week moving average stood at 464.8, down from 475.6 for the week ended Dec. 16. The average rate on a conventional 30-year fixed mortgage eased a little more, according to HSH Associates. For the week ended Dec. 23, the rate was 6.37%, from 6.41% for the week ended Dec. 16.

The MBA's refi index continues to tumble. During the week ended Dec. 23, the index stood at 1259.1. In the week ended Dec. 16, the refi index was 1418.1, down from 1441.8 in the week ended Dec. 9. The four-week moving average tumbled to 1428.9, from 1485.2 during the week ended Dec. 16.

ICSC-UBS STORE SALES

Wednesday, Jan. 4, 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 period ending Dec. 31. Sales remained strong, rising 2.8% for the week ended Dec. 24, after a 2.4% gain during the week ended Dec. 17. The pace of sales has improved for three straight weeks.

INSTINET REDBOOK RESEARCH STORE SALES

Wednesday, Jan. 4, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the fifth and final fiscal week of December, ended Dec. 31. In the first four weeks of December, ended Dec. 24, sales were flat when compared with the same period in November. Sales during November ended up 0.3% better than the month of October.

MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS

Wednesday, Jan. 4, 10 a.m. EST

Factory orders most likely increased 2.2% in October. That's the consensus forecast from Action Economics. In October, new orders climbed 2.2%, after a 1.4% drop in September. Recent swings in orders have been primarily driven by civilian aircraft orders and October was no exception. Orders for defense aircraft soared 142%, while civilian aircraft orders climbed 50.6%. The end of a machinist strike at Boeing (BA ) contributed to the strong October figures.

November durable goods orders already showed a 4.4% jump, but this increase was again influenced heavily by aircraft orders. November orders for civilian aircraft increased 133.8%. Capital goods orders less civilian aircraft orders were off 2%. Striping out defense equipment and the more volatile civilian aircraft sectors provides a good reading on business investment and business confidence. If companies are willing to make large, long-term commitments in the form of new equipment, then these businesses are assumed to feel upbeat about future prospects.

EARNINGS REPORTS

Thursday, Jan. 5

Constellation Brands, and more.

CHAIN STORE SALES

Thursday, Jan. 5

The International Council of Shopping Centers will release its December same-store sales figures for major U.S. chain retailers. The figures will provide a good picture of this year's holiday shopping season. In the November report, the ICSC forecasted December sales would likely grow about 3.5% from the same period a year ago. Sales in November were up 3.5% from a year ago as retailers started the holiday season off with deep discounts to attract shoppers.

JOBLESS CLAIMS

Thursday, Jan. 5, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Dec. 31 probably stood at 320,000. That's the consensus among economists queried by Action Economics. Jobless claims stood at 322,000 for the week ended Dec. 24, from 319,000 in the previous period, and 331,000 for the week ended Dec. 10.

The four-week moving average stood at 325,000 in the week ended Dec. 24, virtually unchanged from 324,750 for the week ended Dec. 17, and 329,250 for the week ended Dec. 10. Continuing jobless claims for the week ended Dec. 17 climbed to 2.72 million, from 2.63 million in the week ended Dec. 10.

ISM NON-MANUFACTURING SURVEY

Thursday, Jan. 5, 10 a.m. EST

The Institute for Supply Management issues its December index of business activity in the mostly services, non-manufacturing sector. The median forecast of economists polled by Action Economics is for a reading of 59.4%. The November index cooled to 58.5%, from 60% in October, but remained above the 53.3% level of September. The September index was the lowest since April, 2003.

Respondents in September feared material shortages resulting from rebuilding efforts in the hard hit Gulf Coast area, as well as port disruptions. Some disruptions appear to be lingering as a larger percentage of respondents reported slower delivery times of supplies. The supplier delivery index reading of 60.5% in October was the second highest since the survey's inception in 1997. The index increases as more respondents report longer waits for supplier deliveries.

EMPLOYMENT REPORT

Friday, Jan. 6, 8:30 a.m. EST

The December employment figures are expected to be positive. The median forecast from Action Economics calls for payrolls to grow by 200,000 jobs. Companies hired 215,000 more workers in November, after an increase of 44,000 workers in the previous month.

In addition, a broader group of industries showed increased hiring. The percentage of industries reporting increases in employment in November was the highest in a year and a half. The greater breadth of hiring is also a good sign of the economy's health. Factory payrolls are expected to grow by another 5,000 in December, after an increase of 11,000 in November, and 15,000 in October.

Another solid month of job gains is not expected to push the unemployment rate down from the current level of 5%. Average hourly pay most likely rose 0.2% for a second consecutive month, after a 0.6% jump in October. Average hourly wages stood 3.2% above the year ago level in November. It was the largest yearly increase since March of 2003. Yearly growth in hourly wages had hovered around 2.7% through the first three quarters of 2005.

MEETING OF NOTE

Saturday, Jan. 7, 10:15 a.m. EST

European Central Bank Chief Economist Otmar Issing presides over a panel discussion on monetary policy transparency at the American Economic Association's annual meeting in Boston.

By James Mehring

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