Key U.S. Data Releases and Events

These latest developments prompted the Federal Reserve to announce on Friday that it would amplify its actions to provide liquidity to the banking system by increasing the volume of funds available through special term auction facilities, as well as the more traditional open market repo window. The Fed also indicated that the TAFs could be increased further, and would continue for at least six months. The Fed is using a "belt and suspenders" approach to make sure that there is more-than-adequate liquidity in the system, and is hoping that these actions will reverse the recent re-intensification of pressure on LIBOR inter-bank borrowing spreads. Further action by the Fed to reduce the target federal funds rate is expected on, or before, the March 18 meeting of the Federal Open Market Committee. The FOMC is likely conferencing now, in view of February employment numbers released on Friday that show an accelerating decline in private nonfarm payroll employment. An inter-meeting move to reduce the funds rate by 50 basis points early next week cannot be ruled out.

Indicators next week will not alter the picture of an economy that has already slipped into recession, with February retail sales expected to eke out only a slightly nominal gain of 0.1%, while mid-March consumer confidence should continue to plumb new lows for the current business cycle. Real consumer spending has definitely stalled, and that adds up to a mild decline in real GDP for the first half of 2008.

KEY U.S. DATA RELEASES AND EVENTS THIS WEEK

Tuesday, March 11 – Trade Balance (Jan.)

Global Insight: -$62.4 Bil.
Consensus: -$59.5 Bil.
Last Actual: -$58.8 Bil. (Dec.)

What to Look For

• Trade deficit to widen sharply to $62.4 billion in January, from $58.8 billion in December, reversing most of the previous month's improvement.

Implications

We expect a higher bill for imported oil—with both prices and volumes moving up—to account for about three-fourths of the deterioration. Despite the wider gap in January, foreign trade will likely remain a key support for the economy, helped by robust export gains. We expect trade to add about 0.6 percentage point to first-quarter GDP growth, holding the GDP decline to 0.5%, compared with a decline in domestic demand of 1.1%.

Thursday, March 13 – Retail Sales (Feb.)

Total
Global Insight: +0.1%
Consensus: +0.2%
Last Actual: +0.3% (Jan.)

Less Autos
Global Insight: +0.1%
Consensus: +0.2%
Last Actual: +0.1% (Jan.)

What to Look For

• Both top-level sales and sales excluding autos are projected to rise slightly, by 0.1%.

Implications

Retail sales increased an estimated 0.1% in February, with or without automotive sales. Gasoline prices retreated 2.0% last month, temporarily holding back that volatile component. Sales of light vehicles held steady at an annual rate of 15.3 million units. Weak income growth and the steady deterioration in housing markets is holding back sales of building materials, furniture, appliances, and other big-ticket items.

Friday, March 14 – Consumer Price Index (Feb.)

Total
Global Insight: +0.2%
Consensus: +0.3%
Last Actual: +0.4% (Jan.)

Core
Global Insight: +0.2%
Consensus: +0.2%
Last Actual: +0.3% (Jan.)

What to Look For

• Both top-level and core prices are expected to rise 0.2%.

Implications

We expect consumer prices to rise a moderate 0.2% in February, as gasoline prices edged downward during the month. In fact, energy prices as a whole will be down, which will help counteract further upward pressure from food prices. Excluding food and energy, "core" prices likely decelerated to a 0.2% gain, after the unexpected acceleration to 0.3% in January. Last month's uptick in the core rate notwithstanding, the February result will keep the Fed on target for a 50-basis-point cut in the federal funds rate later this month.

Friday, March 14 – Univ. of Michigan's Index of Consumer Sentiment (Preliminary Mar.)

Global Insight: 68.0
Consensus: 70.4
Last Actual: 70.8 (Feb.)

What to Look For

• Overall index is expected to decline by a couple of points, to 68.0.

Implications

The Reuters/University of Michigan index of consumer sentiment is expected to dip from 70.8 in February to 68.0 in early March. With oil prices hitting record levels, gasoline prices are moving up again, undermining real income growth. Meanwhile, declining home prices and stock prices are making consumers increasingly anxious about their personal finances and job security. Real consumer spending is likely to remain stalled through the first half of 2008.