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Key U.S. Data Releases and Events19 Sep 08Markets will remain focused on further elaboration of the details of the U.S. Treasury's comprehensive plan for resolving the crisis in the U.S. financial markets. The Fed chairman's testimony to Congress on September 24 will be a major highlight in terms of the recent responses of the Federal Reserve and the steps going forward. Economic indicators, however, will point to weak growth in the third quarter. The crisis in the U.S. financial markets, which escalated and spread to engulf all major global financial markets last week, virtually eclipsed the reports on the economy last week. That process will likely continue as the Treasury and the Congress flesh out a new strategic plan for dealing with the financial crisis next week, and markets will be hanging on tenterhooks with respect to two major wounded U.S. financial institutions that remain in play. With respect to the management of the crisis and the next steps, Fed chairman Ben Bernanke testifies to the Joint Economic Committee of Congress on Wednesday September 24. Economic indicators next week are expected to add further evidence of a significant slowdown in the economy during the third quarter, and that was even before the recent turmoil in the financial markets. New and existing home sales are expected to decline in August, while durable goods orders will be pulled down by a sharp drop in aircraft. KEY U.S. DATA RELEASES THIS WEEK Wednesday, September 24 – Existing Home Sales (Aug.) Global Insight: 4.90 Mil. What to Look For
Implications The Pending Home Sales Index fell 3.2% in July, to 86.5, pointing to a drop in existing home sales during August. Homes sales are struggling to sustain a recovery, but recent sharp declines in mortgage rates could start to support sales in September, and the fourth quarter. Thursday, September 25 – Durable Goods Orders (Aug.) Global Insight: -2.7% What to Look For
Implications Durable goods orders are estimated to have taken a negative hit in August from a plunge in aircraft orders and more bad news from the auto sector. The automotive industry probably will relapse to near its May lows after two months of modest gains. Thus, transportation equipment will be the bulk of the drag. Core capital goods probably suffered a modest dip, as machinery orders correct after two solid gains totaling 6.7%, despite solid export orders. While strong export markets continue to provide some momentum for capital goods industries, severe downward pressure on corporate profits and a weak domestic economy are becoming heavier anchors to pull forward. Thursday, September 25 – New Home Sales (Aug.) Global Insight: 0.505 Mil. What to Look For
Implications Builders have found it hard to compete in a market saturated with existing homes for sale. This is why new home sales continue to fall, even though existing home sales have stabilized. We believe that new home sales will continue to drop through the end of this year. Friday, September 26 – Real Gross Domestic Product (Final Q2) Global Insight: +3.3% What to Look For
Implications The final GDP reading for the second quarter is expected to be unchanged, at 3.3%. An increased estimate of construction spending should offset lower net exports and lower consumer spending. These data are ancient history at this point, with growth expected to slow sharply (to around 1.0%) in the third quarter and turn negative in the fourth quarter. Friday, September 26 – Michigan Consumer Sentiment Index (Final Sep.) Global Insight: 70.5 What to Look For
Implications The crisis in U.S. financial markets will lead to a quick reversal of gains seen in early September, as consumers face tightening credit conditions, higher borrowing costs, and deflated asset values. Weakening household finances will pull down real consumer spending in the third and fourth quarters of 2008. by Brian Bethune and Nigel Gault
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