Vital Signs: Recession Fears Abate

On deck: April reports on leading indicators, producer prices, and existing home sales, plus March home prices and minutes from the Fed’s last meeting

Recession is still very much a matter of opinion, not a matter of fact. Some economists are even taking at least a half-step back from their previous beliefs that a downturn is all but inevitable. So far, most of the economic data outside of homebuilding and house prices have not met the recession forecasters’ downbeat expectations. Businesses are reining in their capital spending, but not dramatically. Employment losses have not matched the size of those in past recessions. And even consumer spending through April, at least outside of flagging auto sales, is holding up far better than expected.

The issue will not be settled by the week’s relatively skimpy round of economic reports. On Monday, the Conference Board will release its April composite index of leading indicators, those that tend to foreshadow the economy’s future path. So far, the index has clearly forecasted a recession. It has fallen in five of the last six months, and over the past year it is down 2%, a drop that in the past has almost always signaled recession. However, the Board’s index of coincident indicators, those that track the economy’s current path, do not yet offer a confirming signal. This index peaked in October of last year, but the decline to date has been a miniscule 0.2%.

Economists on the National Bureau of Economic Research’s Business Cycle Dating Committee, the official arbiter of recessions and recoveries, consider the depth, breadth, and duration of any downturn. So far, of the key indicators the group follows, only payroll employment and industrial production have posted a clear pattern of decline. However, April industrial output was adversely affected by strike-related losses in the auto industry, and overall job losses have not been especially deep. Moreover, real gross domestic product has not fallen in even one quarter, let alone two. Of course, that could change later this summer when the Bureau of Economic Analysis issues its annual revisions to GDP. Around turning points in the economy, it’s not unusual for small pluses in GDP growth to end up small minuses after these comprehensive revisions.

Other reports of interest this week will be Tuesday’s data on producer prices, which are expected to keep inflation concerns on the radars of both investors and Federal Reserve policymakers. Prices of energy and food are expected to push wholesale prices up again, but not by as much as in March, while the core index, which excludes energy and food, is expected to remain tame.

Inflation concerns will also be a highlight of the minutes of the Fed’s April 29-30 meeting, due on Wednesday, given the dissenting votes by two officials against the Fed’s decision to cut rates. And at the end of the week, the markets will be looking at Thursday’s index of home prices from the Office of Federal Housing Enterprise Oversight and Friday’s data on sales of existing homes for any sign housing is stabilizing. However, the forecasters don’t expect any improvement.

Here’s the weekly economic calendar from Action Economics.

Top Economic Reports
Reports Date Time For Median Estimate Last Period
Composite Index of Leading Indicators Monday, May 19 10:00 a.m. April -0.1% 0.1%
Producer Price Index Tuesday, May 20 8:30 a.m. April 0.5% 1.1%
Producer Price Index (excluding food and energy) Tuesday, May 20 8:30 a.m. April 0.2% 0.2%
Existing Home Sales (millions) Friday, May 22 10:00 a.m. April 4.885 4.930
Other Reports and Events
Reports Date Time For
ICSC-UBS Store Sales Tuesday, May 20 7:45 a.m. May 11-17
Johnson Redbook Weekly Store Sales Tuesday, May 20 8:55 a.m. May 11-17
Mortgage Applications Wednesday, May 21 7:00 a.m. May 11-17
Federal Reserve Meeting Minutes Wednesday, May 21 2:00 p.m. Apr. 29-30
Initial Unemployment Claims Thursday, May 22 8:30 a.m. May 11-17
OFHEO Home Price Index Thursday, May 22 10:00 a.m. March, Q1
SPEECH: Fed Governor Kroszner Thursday, May 22 9:15 a.m.
Earnings Calendar
Company Report Date
Campbell Soup Monday, May 19
Lowe's Monday, May 19
Analog Devices Tuesday, May 20
Autozone Tuesday, May 20
Hewlett-Packard Tuesday, May 20
Home Depot Tuesday, May 20
Intuit Tuesday, May 20
Medtronic Tuesday, May 20
Staples Tuesday, May 20
Target Tuesday, May 20
Computer Sciences Wednesday, May 21
Ltd Brands Wednesday, May 21
NetApp Wednesday, May 21
GameStop Thursday, May 22
The Gap Thursday, May 22
Patterson Thursday, May 22
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