Vital Signs: Economists See Anemic Growth

On tap: October retail sales and industrial production and inflation figures, November regional factory activity reports

Economists keep trimming their fourth-quarter estimates for economic growth. Real gross domestic product was expected to grow around 2.5% at an annualized pace back in August, but the consensus estimate slipped below 2% in October. Now, some forecasters see the economy expanding at an anemic pace between 1% and 1.5%.

There's mounting concern surrounding consumer and business spending. Falling home values, rising gasoline prices, a softer labor market, and tighter credit conditions are expected to finally catch up with consumers. A first glimpse of consumer spending this quarter comes on Nov. 14 with the October retail sales figures. The median forecast calls for a respectable 0.3% rise. Some of that gain, however, will come in the form of stronger gasoline station sales due to elevated gas prices. Those extra dollars diverted to fill up vehicles amounts to an erosion in consumer purchasing power. That could spell trouble for retailers with the holiday shopping season approaching.

October industrial production and regional factory activity reports will shed light on both the current health of manufacturers and business spending. In the third-quarter, spending on business equipment and software actually picked up, but the odds are against another upside surprise. The Institute for Supply Management's recent manufacturing reports showed a deceleration in demand. The Federal Reserve's measure of factory output was soft in August and September. And although the weak Fed results were driven by falling auto production, the third-quarter GDP report showed a solid pickup in motor vehicle output. Unless the third-quarter figure is revised down, some payback in fourth-quarter auto output can be expected.

Slower economic activity should mean reduced inflation pressures in the economy, but the headline readings for October consumer and producer price indexes will be dominated by energy. In September, the consumer price index was up 2.8% from a year ago and it is likely to go higher in October. But investors will be focused on the prices outside of food and energy. So far this year, core inflation has trended lower.

This week's readings on economic activity and inflation are particularly important, since the November employment report is the only major monthly report coming out again before the Fed's Dec. 11 monetary policy meeting. If economic activity figures look weak and core inflation readings soften, it will raise Wall Street's hope of another rate cut before the end of the year.

The bond market will be closed on Monday, Nov. 12 in observance of the Veteran's Day holiday.

Here's the lineup for next week, from Action Economics.

Economic Reports
Report Date Time For Median Estimate Last Period
Treasury Budget (billion) Tuesday, Nov. 13   October -$53.0 $111.6
Retail Sales Wednesday, Nov. 14   October 0.3% 0.6%
Retail Sales (ex-auto) Wednesday, Nov. 14   October 0.4% 0.4%
PPI Wednesday, Nov. 14   October 0.2% 1.1%
PPI (ex-food & energy) Wednesday, Nov. 14   October 0.2% 0.1%
Business Inventories Wednesday, Nov. 14   September 0.3% 0.1%
CPI Thursday, Nov. 15   October 0.3% 0.3%
CPI (ex-food & energy) Thursday, Nov. 15   October 0.2% 0.2%
Empire State Index Thursday, Nov. 15   November 20.0 28.8
Philadelphia Fed Survey Thursday, Nov. 15   November 6.8 6.8
Industrial Production Friday, Nov. 16   October 0.1% 0.1%
Capacity Utilization Friday, Nov. 16   October 82.1% 82.1%


Tuesday, Nov. 13, 1 p.m. EST - Federal Reserve Board Governor Randall Kroszner gives the keynote speech at a Standard & Poor's 2007 bank conference entitled "Fundamentals Matter" in New York City.

ICSC-UBS STORE SALES - Tuesday, Nov. 13, 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 ended Nov. 10. Sales zoomed ahead 1% for the week of Nov. 3, after edging up 0.1% the prior period and tumbling 1.5% in the week ended Oct. 20. The yearly pace stood at 2.4%, after improving to 2.5% in the previous period.

JOHNSON REDBOOK INDEX - Tuesday, Nov. 13, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the first fiscal week of Nov., ending Nov. 10. During the month of October sales were off 0.4% after September sales rose 0.3%.

PENDING HOME SALES - Tuesday, Nov. 13, 10 a.m. EST

The National Association of Realtors index of pending home sales tracks sales activity by looking at signed real estate contracts for existing residences. The August figures showed another big monthly decline of 6.5%, after a 10.7% plunge in July.

The latest deterioration has driven the yearly decline in pending sales to 21.5% in August. Demand is falling off most sharply in the western part of the country, with pending sales off 27.1%. The latest figures point to further declines in existing homes sales this year.

FEDERAL BUDGET - Tuesday, Nov. 13, 2 p.m. EST

The new fiscal year probably started off with a larger October deficit than a year ago. The consensus among economists surveyed by Action Economics is for a $53 billion shortfall, vs. a $49.3 billion deficit last October.

This would follow what turned out to be a far smaller than expected fiscal year 2007 budget deficit of $162.8 billion. In the prior fiscal year, the total shortfall was $248.2 billion. Revenues played a critical role in narrowing the deficit, rising 6.7% from the prior fiscal year, vs. a 2.8% rise in outlays.

However, revenue growth did slow during the year and expectations of softer economic growth going forward mean the deficit is likely to widen in fiscal year 2008.


Wednesday, Nov. 14, 4 a.m. EST - Federal Reserve Bank of Dallas President Richard Fisher speaks on the U.S. economic outlook at the Australian Business Economists annual dinner in Sydney.

9:10 a.m. EST - Federal Reserve Board Chairman Ben Bernanke gives the keynote speech at the Cato Institute's 25th Annual Monetary Conference titled "Monetary Arrangements in the 21st Century" in Washington, D.C.

MORTGAGE APPLICATIONS - Wednesday, Nov. 14, 7 a.m. EST

The Mortgage Bankers Association releases its mortgage Weekly Mortgage Applications Survey of home buying and refinancing application activity for the week ending Nov. 9. The purchase index held steady at 412.7 in the week ended Nov. 2, from 412.9 in the prior period. Meanwhile, the refi index retreated to 2176.1, from 2249.

The four-week moving average for the purchase index cooled to 417.6, from 419.5. The four-week moving average for the refi index was pushed up by the latest weekly result, to 2116.3, from 2073.1 in the week ended Oct. 26.

The average interest rate for a 30-year fixed-rate mortgage was 6.16%, after falling to 6.15% in the prior period.

RETAIL SALES - Wednesday, Nov. 14, 8:30 a.m. EST

Retail sales are expected to grow more modestly in October, after a stronger-than-expected 0.6% jump in September. The weaker performance will be led by slightly softer auto sales and higher gasoline prices. Increased spending on gasoline will show up in purchases at gas stations. However, the extra dollars spent on gas can be viewed as a reduction in consumer purchasing power that could constrict spending through the remainder of the fourth quarter.

Indeed higher gasoline prices and an intensifying contraction in housing activity are making retailers very nervous about the holiday shopping season. Some, such as Wal-Mart (WMT), have already kicked off their holiday sales season. And a recent survey of Chief Marketing Officers by accounting and consulting services firm BDO Seidman indicates stores will offer more promotions and bigger discounts to attract shoppers this year.

PRODUCER PRICE INDEX - Wednesday, Nov. 14, 8:30 a.m. EST

Wholesale prices for finished goods are expected to increase only slightly in October, after a big 1.1% jump in September. However, with the average October price per barrel of oil surging 7% from September and the average spot price for a gallon of gasoline increasing 3%, there's some upside risk in the consensus view.

The September increase was led by a 4.1% rise in energy prices and a 1.5% rebound in food costs that came after four straight monthly declines. On a yearly basis, wholesale prices climbed 4.4% in September, from 2.2% in August.

Outside of the very volatile food and energy areas, price pressures look more subdued. The October figures are expected to show another modest monthly increase, keeping in line with the latest six months where the core producer price index for finished goods posted either 0.1% or 0.2% gains. This latest trend is keeping alive a two-year run of core wholesale inflation growth below 2.5%. Subdued price pressures outside of food and energy are positive for corporate earnings.

BUSINESS INVENTORIES - Wednesday, Nov. 14, 10:00 a.m. EST

Business inventory growth is expected to have picked up in September. Already, wholesalers reported a 0.8% rise as the value of farm products soared 9.6%. This may reflect an increase in the price of certain food products, which raises the overall value of those inventories. Monthly Census Bureau inventory reports measure the value and not the volume of goods. Manufacturers also reported a 0.6% monthly rise, with a price-driven 5.4% rise in the value of petroleum inventories.

Even with fuller warehouses, inventories are still well in line with demand. The inventory-to-sales ratio was 1.27 months in August, down from 1.3 in January. Most of the move down was in the retail and wholesale areas. Manufacturers have seen the ratio climb in the past couple months. The ratio for manufacturers and retailers bear watching. Slower consumer spending and ongoing credit market turmoil could make businesses act more cautiously.

JOBLESS CLAIMS - Thursday, Nov. 15, 8:30 a.m. EST

In a positive sign for the labor market, jobless claims fell to 317,000 for the week ended Nov. 3. In the week ended Oct. 27 initial claims stood at 330,000, after a reading of 333,000 the week before and 339,000 in the period ended Oct. 13.

The four-week moving average did climb to 329,750, from 327,750 for the week ended Oct. 27. Continuing jobless claims, which run a week behind the initial claims figures, remained at 2.58 million for a second straight week. This measure of jobless claims has been trending higher this year as businesses have pulled back on hiring.

CONSUMER PRICE INDEX - Thursday, Nov. 15, 8:30 a.m. EST

Inflation in October is forecast to rise by 0.3% for a second straight month. The rise should be energy driven. In September, energy prices rose just 0.3%, although heating oil jumped 1% and should post another jump in October. Food and beverage prices grew 0.5%.

On a yearly basis, inflation accelerated to 2.8% in September, from 1.9% in August. The jump was mostly related to falling energy prices at this time last year. Another big jump in the annual gain could occur as the CPI index fell 0.4% last October.

Prices outside the volatile food and energy areas probably remain more subdued. The October index is expected to continue the long string of 0.2% monthly increases that go back to June. Compared to a year ago, core inflation has been easing. Prices were up 2.1% in September, from 2.7% in January. The downward trend has occurred despite brisk price increases in healthcare, up 4.6% from a year ago. The moderating factors include apparel and recreation. There are also signs that the weaker housing market is reducing price pressures for renters and home owners.


The New York Federal Reserve Bank's November Empire State Manufacturing Survey probably gave some ground. In October, the general business conditions index bucked the general trend among Fed regional factory activity reports. More respondents said that new orders, unfilled orders, and production increased. At the same time, the October employment reading edged up and stands solidly above the long-term average.

The outlook among manufacturers in the region was a little brighter as well. The future general business conditions index crept up to 50.6%, from 48.8% in September. There were higher expectations for new orders, employment, and capital spending.

REAL EARNINGS - Thursday, Nov. 15, 8:30 a.m. EST

Inflation-adjusted weekly earnings of production workers probably retreated in October. That's based on the consensus forecast of a 0.3% gain in consumer prices and the 0.2% gain in average weekly earnings for the same month. Real earnings ticked up 0.1% in September, after a 0.5% jump in August. The solid gains in earnings and deceleration in inflation led to a 1.3% yearly increase in real earnings for September.

PHILADELPHIA FED SURVEY - Thursday, Nov. 15, 12 p.m. EST

The Philadelphia Federal Reserve Bank's factory activity index probably held steady in November. Manufacturers in the Philly Fed's region reported weaker business conditions in October with a reading of 6.8. The September level was 10.9 after an August reading of 0. The report also showed that shipments, inventories, and unfilled orders all contracted in October, while the new orders index showed a sharp slowdown in new orders growth to 2.7, from 15.1 in September.

Meanwhile, manufacturers are feeling hopeful that conditions will improve over the coming six months. The index tracking expectations for general business activity climbed to 41.5, from 35.7 in September. The new orders, capital expenditures, and employment indexes were generally stable, although the shipments reading did slip.


Friday, Nov. 16, 4 a.m. EST - Federal Reserve Bank of Atlanta President Dennis Lockhart gives a speech in Montreal, Canada.

INDUSTRIAL PRODUCTION - Friday, Nov. 16, 9:15 a.m. EST

Industrial activity will remain pretty weak in October. Overall output is expected to post another soft 0.1% gain, after remaining flat in August. The October factory activity report from the Institute for Supply Management fell, pointing to softer production.

Manufacturing activity has been tepid in the past two months, dragged down by the troubled U.S. auto makers. Light vehicle production plunged 3.3% and 1.6% in September and August, respectively. Housing related areas are also having a tough time as production of wood products, furniture, and construction supplies have fallen of late. There are some areas of resilience,with business equipment production rebounding in September.

The small gain forecast for October is expected to keep the capacity utilization rate at 82.1% for a third straight month.

Earnings Calendar
Day Companies
Monday Tyson Foods
Tuesday Home Depot, TJX, Wal-Mart Stores
Wednesday Applied Materials, Macy's, Network Appliance
Thursday Agilent Technologies, Autodesk, Intuit, Kohl's, Starbucks, Tyco International
Before it's here, it's on the Bloomberg Terminal.