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Key U.S. Data Releases and Events26 Sep 08Congress is expected to redouble efforts to craft legislation on the troubled asset repurchase program (TARP) over the weekend. Indeed, an announcement of an agreement in principle could be made by the president and both leaders of the Senate and the House by Sunday or Monday. However, economic indicators next week will suggest that the economy is rapidly losing momentum in the third quarter. After a major setback on Thursday, Congress is expected to redouble efforts to craft legislation on the troubled asset repurchase program (TARP) over the weekend. Indeed, an announcement of an agreement in principle could be made by the president and both leaders of the Senate and the House by Sunday or Monday. It may take several more days next week to "dot the i's and cross the t's" before a complete bill is ready to be voted on. It may well pass both the Senate and the House by slim margins, as negative political fallout from the legislation is inevitable—given the hiccups and misfires in communications of how the TARP program actually works, and the likely costs to taxpayers—in upcoming November elections. Economic indicators next week will suggest that the economy is rapidly losing momentum in the third quarter, with flat consumption spending in August and a further decline in construction spending. ISM leading indicators will move down a notch in September, and nonfarm payrolls are projected to decline by 110,000. Massive year-end sales incentives should goose auto sales a little higher in September, but it is hard to see how these very sweet incentives could be sustained through October. KEY U.S. DATA RELEASES THIS WEEK Monday, September 29 – Personal Income, Consumption, and Prices (Aug.) Personal Consumption, Nominal Personal Consumption, Real Core PCE Price Index Personal Income What to Look For
Implications Personal income rose 0.4% in August, but disposable income will decline by about 0.9%, as tax-rebate payments declined sharply. We expect consumer spending to be weak again in August. Retail sales excluding motor vehicle dealers and building and garden supply stores fell 0.5% in August, reversing a 0.3% gain in July. Spending on autos, however, was up from July. With an expected modest 0.4% gain on spending on services, consumer spending in August likely increased by only 0.1%. With flat consumer prices, spending probably edged 0.1% higher in real terms as well. We expect that real consumer spending in the third quarter will post its first quarterly decline in nearly 17 years. We expect the core PCE deflator to decelerate in August and rise 0.2% following two consecutive elevated increases of 0.3%. On a year-on-year basis, look for the core PCE to remain at the 2.4% rate recorded in the previous month. With all of the inflation fundamentals weak, it is likely that August signals a stabilization in core inflation, and provides the Fed some leeway to address the downside growth risks precipitated by the ongoing financial crisis. Wednesday, October 1 – Construction Spending (Aug.) Construction Put in Place Construction Excl. Residential Improvements What to Look For
Implications We are expecting another 3–4% drop in single-family construction, a second straight drop in nonresidential construction, and a modest gain in government construction. Added together, construction spending likely fell 0.5% in August. Excluding improvements, the drop will also be 0.5%. Prospects for construction in the short term are not good—the housing downturn has months to run, and nonresidential construction is about to hit a wall. Wednesday, October 1 – ISM Manufacturing Index (Sep.) Global Insight: 48.5 What to Look For
Implications The ISM-manufacturing should slip a notch to 48.5 showing a decline from both the 49.9 of August and neutrality (50). The manufacturing sector will be hit hard by two outside events that will make a big dent in September industrial production, but do less severe damage to the purchasing managers index (PMI), namely the Boeing strike and Hurricane Ike. Ongoing softening in energy prices should dampen the prices reading further, but the item to watch will (once again) be export orders—they are the last prop supporting the economy, and are under threat from a faltering world economy. Wednesday, October 1 – Motor Vehicle Sales (Sep.) Global Insight: 14.1 Mil. What to Look For
Implications We expect light-vehicle sales to improve to 14.1 million in September from 13.7 million in August. Incentive levels continued to be high through September as manufacturers pushed to clear inventory of the 2008 models and begin sales of the 2009 versions. However, there may be payback in weak October sales. Friday, October 3 – Employment Report (Sep.) Nonfarm Payrolls Global Insight: -110,000 Consensus: -105,000 Unemployment Rate Global Insight: 6.1% Average Hourly Earnings Global Insight: 0.3% What to Look For
Implications We expect nonfarm payroll employment to fall 110,000 in September, steeper than the 84,000 drop in August, and signaling that the labor-market deterioration is getting worse. The outcome would be worse if the striking Boeing workers were included, but we do not expect them to negatively impact the payroll count until October (if the strike continues). The unemployment rate may hold steady, temporarily, at 6.1%, after jumping higher from 5.7% last month. Friday, October 3 – ISM Nonmanufacturing Index (Sep.) Global Insight: 49.5 What to Look For
Implications The ISM index for services is expected to drop to a level of 49.5. Freight activity slowed down in recent weeks as retail sales continued to trail expectations and inventories were a little top-heavy. Severe stress on financial markets, which led to further tightening of credit conditions in interbank markets, the failures of two major financial institutions (Lehman Brothers and WAMU), and a spike in LIBOR borrowing rates, will also pull the index lower. Prices paid should ease further. by Brian Bethune and Nigel Gault
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