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Key U.S. Data Releases and Events18 Apr 08The indicators released next week will be relatively few, with new and existing home sales expected to be down once again in March, while durable goods orders should have bounced back. The economy is still limping along, with consumer sentiment at recessionary levels, but we have seen a few positive signs on the financial side. U.S. equity markets moved up sharply last week, as first-quarter nonfinancial earnings reports were generally a little better than expected, along with a few positive flickers in the financial markets, and in leading indicators, about a prospective turnaround in the economy further down the road. Notwithstanding continued large-scale write-offs in the financial sector related to subprime fallout, several major banks announced significant recapitalization efforts. However, concerns about additional write-offs in the banking sector continued to put upward pressure on the U.S. Treasury-eurodollar (TED) spread, which remained near 170 basis points last week, up about 10 basis points from the preceding week. The Federal Reserve's new term auction, repo, and term securities lending facilities were heavily utilized last week, but dealers reduced their borrowing through the discount window. The cash squeeze on primary dealers has definitely diminished in the past two weeks. The upcoming week's indicators will be relatively few, with new and existing home sales expected to down once again in March. But durable goods orders should have bounced back last month—with aircraft and other key capital equipment industries driving the advance—spurred on by strong export demand and a very competitive level for the U.S. dollar. Consumer sentiment is expected to remain mired in the recessionary zone, as gasoline prices continue to see upward pressure. KEY U.S. DATA RELEASES AND EVENTS THIS WEEK Tuesday, April 22 – Existing Home Sales (Mar.) Global Insight: 4.93 Mil. What to Look For
Implications The market for new and existing homes has three forces working against it. First, credit remains tight. Second, the economy is losing jobs (300,000 private-sector jobs lost in the past four months). And third, house prices are falling in more places and at an accelerated rate. The Pending Home Sales Index fell 1.9% in February, to 84.6, its lowest reading ever (January 2001 is the initial data point). Based on this, and recent trends, we project that existing homes dropped about 2% in March. Thursday, April 24 – Durable Goods Orders (Mar.) Global Insight: +0.6% What to Look For
Implications Durable goods orders are set to rise 0.6% in March, based on a $2-billion-plus increase in aircraft orders, and despite a drag from most capital goods. Last month was probably not a positive one for either core capital goods or motor vehicle orders, but these sectors got hammered with 2.4%-or-greater declines in February and should see milder drops in March. Currently, core capital goods orders are being dragged down by a very weak motor vehicle industry. Excluding it, key industries such as oil services, technology, heavy machinery, and agricultural machinery continue to see strong overseas demand and orders momentum, aided by a much lower U.S. dollar. This demand-switching process will continue for several more months. Thursday, April 24 – New Home Sales (Mar.) Global Insight: 0.575 Mil. What to Look For
Implications As noted above, the market for new and existing homes has three forces working against it. First, credit remains tight. Second, the economy is losing jobs (300,000 private-sector jobs lost in the past four months). And third, house prices are falling in more places and at an accelerated rate. Based on this, and recent trends, we project that new homes dropped 2.5% in March. Key numbers to watch for in the new home sales release are the inventories of unsold new homes and of completed new homes. February's new home sales release showed the number of unsold homes falling for the 11th straight month; the number of completed new homes, which set a record high in December, fell for the second straight month. Friday, April 25 – Univ. of Michigan's Index of Consumer Sentiment (Final Apr.) Global Insight: 63.5 What to Look For
Implications Rising food and energy costs, together with falling employment, are undermining real income growth. Meanwhile, declining home and stock prices are eroding household net worth and prompting consumers to curtail discretionary spending. Overall, we still expect consumer spending to be weak in the first half of 2008, with further downward slides in motor vehicle sales expected in the second quarter. Real consumption growth is expected to average below 1% in the first two quarters of 2008. by Brian Bethune and Nigel Gault
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