Key U.S. Data Releases and Events

The summit will explore more-effective institutional mechanisms for regulating global financial entities and responding to global financial crises, as the existing consultative frameworks under the International Monetary Fund, the G-8 finance ministers, and the G-10 central banks proved to be woefully inadequate for both circumventing and then dealing with the current crisis. In advance of the summit, giving a flavor for the likely outcomes, Japan pledged a $100-billion infusion to the IMF, while China advanced a $500-million loan to Pakistan. The IMF will undoubtedly get marching orders to ramp up lending assistance to emerging and other industrial countries, and will likely get a green light on its proposal for pre-approved lending facilities.

Treasury Secretary Paulson will be speaking at several events next week in Washington and California, and will elaborate on the Treasury' Department's deployment of TARP resources, and hopefully provide more detail on recently announced plans to support the asset-backed securitization market. Economic indicators and reports will be tilted on the positive side, as we expect a small bounce in October industrial production, while consumer and producer prices will likely both drop sharply, confirming that inflationary pressures are no longer an issue for the FOMC to fret about. Indeed, the FOMC is managing the effective federal funds rate well below its target of 1.00%, signaling that another 50-basis-point rate cut is in the pipeline. On the negative side, housing starts in October will have declined to a record low, as builders continue to shrink production in the face of weak demand for both new and existing homes.

KEY U.S. DATA RELEASES THIS WEEK

Monday, November 17 – Industrial Production (Oct.)

Global Insight: +0.5%
Consensus: +0.2%
Last Actual: -2.8% (Sep.)

What to Look For

• Overall output should see a modest bounce-back from October's plunge.

Implications

Industrial production should see a modest bounce-back in October, as refining and chemical output rebounds after September's hurricanes, but the rest of manufacturing remains in headlong retreat. Indeed, refining and chemical production should add 1.4 percentage points to the overall manufacturing gain, but auto production was dreadful and manufacturing hours fell sharply. Recoveries in oil/natural gas production and electricity output are pluses for the total production index, but only a token 0.5% rebound is expected, after the 2.8% drubbing in September.

Tuesday, November 18 – Producer Price Index (Oct.)

Total
Global Insight: -2.0%
Consensus: -1.8%
Last Actual: -0.4% (Sep.)

Core
Global Insight: 0.1%
Consensus: 0.1%
Last Actual: 0.4% (Sep.)

What to Look For

• Overall producer prices to collapse by 2.0%.
• Core prices to be up only 0.1%.

Implications

Due to the dramatic decline in energy prices, especially gasoline and fuel oil, we expect the producer price index to fall 2.0% in October. Excluding food and energy, the core producer price index should register a slight 0.1% increase. Commodity prices are tumbling as global demand retrenches and the advanced economies of Europe and North America enter recession. The recent drop-off in manufacturing has also reduced demand for durable goods and capital equipment, easing price pressures throughout the production pipeline.

Wednesday, November 19 – Consumer Price Index (Oct.)

Total
Global Insight: -0.9%
Consensus: -0.8%
Last Actual: 0.0% (Sep.)

Core
Global Insight: +0.2%
Consensus: +0.2%
Last Actual: +0.1% (Sep.)

What to Look For

• Top-level prices to be down 0.9%.
• Core prices to rise by 0.2%.

Implications

The retreat of the consumer price index was put on hold during September, when the Gulf hurricanes interrupted the decline in energy prices. But with those effects now far removed, the index likely fell 0.9% in October. We expect gasoline prices plunged 16%, as lower oil prices were passed through. Food price inflation should have eased as cost pressures diminished. The core inflation rate is projected at 0.2%, but a smaller gain of 0.1% would be no surprise. Increases of just 0.1% are likely to be the norm in coming months, as declining demand forces price discounting.

Wednesday, November 19 – Housing Starts and Building Permits (Oct.)

Starts
Global Insight: 0.778 Mil.
Consensus: 0.780 Mil.
Last Actual: 0.817 Mil. (Sep.)

Permits
Global Insight: 0.780 Mil.
Consensus: 0.773 Mil.
Last Actual: 0.805 Mil. (Sep.)

What to Look For

• Housing starts to decline by 4.8%.
• Permits to be down 3.1%.

Implications

Housing starts fell to their second-lowest monthly level ever in September (the record-low was in January 1991, when starts—depressed by cold weather—fell to 798,000). This record will probably be shattered in October, when we expect starts to fall 4.8%, to 778,000. The homeowner vacancy rate—which measures the proportion of single-family homes that are vacant and for sale—remained at 2.8% at the end September, just above the all-time high of 2.9% set at the end of the first quarter. The fact that it remains near a record high, despite plunging housing starts and falling home prices, is a sign that household formation has slowed noticeably, as people losing their jobs or homes to foreclosures move in with relatives. This slowdown in household formation is one more obstacle that will prolong the downturn in housing starts.