Vital Signs: Economy's Worst Quarter Since 1981-82 Recession?

On deck: foreign trade, import prices, federal budget, retail sales, producer and consumer prices, industrial production, and much Fedspeak

A raft of economic data and reports for December in the coming week will just about close the door on what will likely be the worst quarter for economic growth since the 1981-82 recession. The Commerce Dept. will tally up the full damage in it's first estimate of real gross domestic product for the fourth quarter on Jan. 30. The GDP numbers are expected to show that the brunt of the economy's weakness is now shifting from consumers to businesses.

Up to late summer, corporate cutbacks in hiring and capital spending have been relatively mild. Companies went into the recession having added conservatively to their payrolls, plant and equipment, and inventories in recent years. Now the plunge in consumer spending that began at mid-year and the new sharp round of tighter credit following the Lehman Brothers bankruptcy are overwhelming those moderating influences. Companies are slashing costs to preserve what's left of their profit prospects, and those efforts are showing up in drastic reductions in payrolls and steeper cuts in capital spending.

Nowhere is this retrenchment clearer than in the manufacturing sector, as this week’s report on industrial production, along with two regional surveys of industrial activity, will show. Industrial production in the fourth quarter appears to have shrunk more than 9% at an annual rate, which would be the largest quarterly drop since 1980. Manufacturing is reeling under the impact of credit tightening on housing, autos, and capital goods.

The week’s report in retail sales is expected to reflect the continued weakness in consumer demand, even as falling global demand is hammering exports. The Institute for Supply Management’s index of export orders fell further in December, hitting a fresh record low.

Foreign trade is also on this week’s agenda, and both exports and imports are expected to show weakness. Sagging U.S. demand is reducing imports, which will actually be a plus for GDP growth in the fourth quarter, but any fall in imports will most likely be swamped by the sudden and steep decline in exports. That means the trade gap will most likely widen, resulting in a net negative impact on GDP growth.

In addition to the state of economic activity heading into the new year, market attention will also be firmly fixed on inflation. The week offers December reports on both producer and consumer price indexes. Both are expected to post sharp declines from November, reflecting falling gasoline and other energy costs. However, the markets will be particularly interested the path of core inflation, which excludes energy and food. Some Federal Reserve officials registered concerns that inflation could fall to uncomfortably low levels in coming months that could raise fears of deflation. Plunging energy prices are expected to send overall inflation into negative territory in coming months, but any move in the core inflation rate toward zero would spark deflation worries.

Many Fed policymakers will have plenty of opportunity to air their views on deflation and other issues this week. No fewer than seven Fed officials will be speaking on a range of topics, including remarks by Chairman Ben Bernanke in London.

Here’s the weekly economic calendar, from Action Economics:

Top Economic Reports
Top Reports Date Time For Median Estimate Last Period
Trade Balance ($Billions) Tuesday, Jan. 13 8:30 a.m. November -$55.0 -$57.2
Goods & Services Exports ($Billions) Tuesday, Jan. 13 8:30 a.m. November $150.6 $151.7
Goods & Services Imports ($Billions) Tuesday, Jan. 13 8:30 a.m. November $203.8 $208.9
Treasury Budget ($Billions) Tuesday, Jan. 13 2:00 p.m. December -$44.0 -$164.4
Retail Sales Wednesday, Jan. 14 8:30 a.m. December -1.2% -1.8%
Retail Sales (Excluding autos) Wednesday, Jan. 14 8:30 a.m. December -1.2% -1.6%
Export Price Index Wednesday, Jan. 14 8:30 a.m. December -1.9% -3.2%
Import Price Index Wednesday, Jan. 14 8:30 a.m. December -4.9% -6.7%
Business Inventories Wednesday, Jan. 14 10:00 a.m. November -0.4% -0.6%
Producer Price Index Thursday, Jan. 15 8:30 a.m. December -1.9% -2.2%
Producer Price Index (Excluding food & energy) Thursday, Jan. 15 8:30 a.m. December 0.1% 0.1%
Empire State Index Thursday, Jan. 15 8:30 a.m. January -24.5 -25.8
Philly Fed Index Thursday, Jan. 15 10:00 a.m. January -32.0 -32.9
Consumer Price Index Friday, Jan. 16 8:30 a.m. December -0.8% -1.7%
Consumer Price Index (Excluding food & energy) Friday, Jan. 16 8:30 a.m. December 0.1% 0.0%
Industrial Production Friday, Jan. 16 9:15 a.m. December -0.4% -0.6%
Capacity Utilization Friday, Jan. 16 9:15 a.m. December 75.0% 75.4%
Consumer Sentiment Index (Preliminary) Friday, Jan. 16 9:55 a.m. January 59.2 60.1
Other Reports and Events
Other Reports and Events Date Time For
SPEECH: Atlanta Fed President Lockhart Monday, Jan. 12 12:40 p.m.
EARNINGS: Charles Schwab (SCHW) Monday, Jan. 12  
EARNINGS: Alcoa (AA) Monday, Jan. 12  
EARNINGS: M&T Bank (MTB) Monday, Jan. 12  
NFIB Small Business Survey Tuesday, Jan. 13 7:30 a.m. December
ICSC-UBS Store Sales Tuesday, Jan. 13 7:45 a.m. Jan. 4-10
Johnson Redbook Weekly Store Sales Tuesday, Jan. 13 8:55 a.m. Jan. 4-10
SPEECH: Fed Chairman Bernanke Tuesday, Jan. 13 8:00 a.m.
Job Openings and Labor Turnover Tuesday, Jan. 13 10:00 a.m. November
SPEECH: Richmond Fed President Lacker Tuesday, Jan. 13 5:00 p.m.
EARNINGS: Linear Technology (LLTC) Tuesday, Jan. 13  
EARNINGS: State Street (STT) Tuesday, Jan. 13  
Mortgage Applications Wednesday, Jan. 14 7:00 a.m. Jan. 4-10
SPEECH: Philadelphia Fed President Plosser Wednesday, Jan. 14 8:30 a.m.
SPEECH: Minneapolis Fed President Stern Wednesday, Jan. 14 1:00 p.m.
Federal Reserve Biege Book Report Wednesday, Jan. 14 2:00 p.m.
Initial Unemployment Claims Wednesday, Jan. 14 8:30 a.m. Jan. 4-10
EARNINGS: Xilinx (XLNX) Wednesday, Jan. 14  
EARNINGS: Wells Fargo (WFC) Wednesday, Jan. 14  
Treasury International Capital Report Thursday, Jan. 15 9:00 a.m. November
SPEECH: San Francisco Fed President Yellen Thursday, Jan. 15 TBA
SPEECH: Chicago Fed President Evans Thursday, Jan. 15 1:40 p.m.
SPEECH: Atlanta Fed President Lockhart Thursday, Jan. 15 1:40 p.m.
EARNINGS: Marshall & Ilsley (MI) Thursday, Jan. 15  
EARNINGS: Philip Morris International (PM) Thursday, Jan. 15  
EARNINGS: Amphenol (APH) Thursday, Jan. 15  
EARNINGS: Intel (INTC) Thursday, Jan. 15  
SPEECH: Richmond Fed President Lacker Friday, Jan. 16 12:15 p.m.
EARNINGS: First Horizon National (FHN) Friday, Jan. 16  
EARNINGS: Johnson Controls (JCI) Friday, Jan. 16  
EARNINGS: PPG Industries (PPG) Friday, Jan. 16  
EARNINGS: CIT Group (CIT) Friday, Jan. 16  
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