Key U.S. Data Releases and Events

On a positive note, consumer prices are expected mirror producer prices and move down in August. But the big event of the week will be the September 16 meeting of the Federal Open Market Committee, where markets expect the FOMC to vote to keep interest rates unchanged. The press statement will be closely parsed for signals of changes in the balance of risks, as downside risks to the economy are becoming more apparent, while upside risks to inflation—although still a concern—have clearly diminished since the last meeting. A move by the FOMC to a more balanced-risk statement, which is what we expect, would be consistent with the recent shift in market futures sentiment towards a possible rate cut by the end of 2008.

KEY U.S. DATA RELEASES THIS WEEK

Monday, September 15 – Industrial Production (Aug.)

Global Insight: -0.8%
Consensus: -0.3%
Last Actual: +0.2% (Jul.)

What to Look For

• Industrial production to fall 0.8% on a sharp drop in motor vehicle output.

Implications

August is expected to see a sharp drop in motor vehicle production, another reduction in electricity output, and weakness in the core manufacturing sector. The manufacturing sector had drops in both the workweek and employment during August, and the weather remained very mild and required less air conditioning than normal. September will be even worse, with a Boeing strike and hurricane losses for the production and refining of oil and natural gas. The third quarter is shaping up to be another negative quarter for industrial production, right on the heels of a drop in the second quarter.

Tuesday, September 16 – Consumer Price Index (Aug.)

Total
Global Insight: -0.1%
Consensus: 0.0%
Last Actual: +0.8% (Jul.)

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

What to Look For

• Overall prices to decline by 0.1%.
• Core prices to be up by 0.3%.

Implications

Falling gasoline prices provide much of the relief, and will lead overall energy prices down by roughly 3.0%. Although we look for a deceleration in food prices, we expect them to remain on the rise in August. However, the remnants of the energy and commodity price boom should turn up again in core consumer prices. We expect another elevated 0.3% advance in August, following two consecutive such rises. Core price relief should not be that far away; our outlook depends heavily on what turns up in the August report, though. With the Fed expecting a similar near-term improvement in the core rate, it will likely brush off a third elevated reading in the face of rising unemployment, weaker growth both in the United States and abroad, and continued credit market problems.

Tuesday, September 16 – FOMC Rate Decision

Global Insight: 2.00%
Consensus: 2.00%
Last Actual: 2.00%

What to Look For

• The Federal Reserve Open Market Committee is expected to vote to keep the federal funds rate unchanged at 2.00% on September 16.

Implications

Downside risks to the economic outlook are increasing, as the employment market continues to deteriorate, household net worth continues to fall, and the greater part of the fiscal-stimulus payments ended in July. Financial market stresses continue at a high pitch. At the same time, upside risks to inflation—although still a concern—have dropped substantially, with energy prices in retreat and a much stronger U.S. dollar. Moreover, inflation expectations have shown a commensurate sharp drop. We also expect that the Fed will move much closer to a neutral position on the future path of rates, and may either drop, or substantially water down, signals that the next rate move will be up.

Wednesday, September 17 – Housing Starts and Building Permits (Aug.)

Starts
Global Insight: 0.893 Mil.
Consensus: 0.950 Mil.
Last Actual: 0.965 Mil. (Jul.)

Permits
Global Insight: 0.891 Mil.
Consensus: 0.930 Mil.
Last Actual: 0.937 Mil. (Jul.)

What to Look For

• Starts and permits to decline in August.

Implications

Based on July's 5.2% drop in single-family permits, we project that single-family starts in August will drop about 4–5%. We are also expecting another drop in single-family permits, as well as some easing in multi-family starts and permits. Altogether, we project that permits dropped to 891,000 and starts fell to 893,000 in August. Home builders continue to cut housing supply in order to bring inventories down, a process that should continue for several more months.