(Week of 17 to 23 November 2008)
- NY Empire and Philadelphia Fed index (Nov): still at record-low recession levels
- Industrial production (Oct): slight increase but downward trend remains intact
- PPI and CPI (Oct): sharp declines due to correction in energy prices
- Leading indicators (Oct): accelerating downward trend
The New York Empire manufacturing index, which was first released in July 2001, fell to an all-time low of -24.6 in November. Given the deterioration in domestic demand and the global economy and the continued plunge in US small business optimism, a rebound appears unlikely; it could instead decline further to -28.0 in November.
The Philadelphia Fed index plummeted even more in October, by about 40 points to -37.5. This is the lowest it has been since January 2001. We expect it to have stabilized around this level in November. Thus the two indices might converge somewhat.
Industrial production fell sharply by 2.8% mom in September, but this was mainly due to the Gulf coast hurricanes, and the Boeing strike also dampened output. Thus industrial production might have recovered somewhat in October, but only by about 0.2% mom at the most, given that the downward trend in leading indicators is still intact. Moreover, the ISM manufacturing index fell to a recession level of 38.9, aggregate working hours declined further, and utility output is likely to have decreased too. The capacity utilization rate could have remained more or less unchanged at 76.5%, about 4 points below its long-term average.
Falling energy prices will have had a major impact on October inflation data. We already know that import prices fell by 4.7% mom. As average gasoline prices went down by 18% mom, we expect producer prices to have dropped by 2% mom in October, and consumer prices might also have declined by about 1% mom. The annual rates are falling rapidly, and CPI could be below 2% yoy at the end of Q1/2009.
Due to weak domestic demand, core price levels ex food and energy are only likely to have increased moderately in October, by 0.1% mom respectively.
Housing starts declined by 6.3% mom to 817k in September, after having gone down by 8.1% and 12.9% in the previous months. Given that building permits are at an even lower level and homes for sale at a record-high level, housing starts have not yet bottomed out, and we forecast that they will have fallen to 775k in October. Building permits might also have fallen to 775k, from an upwardly revised 805k.
Initial jobless claims jumped by 32k to 516k in the week ending November, the highest level since September 2001 in the aftermath of the terrorist attacks. We expect jobless claims to remain above 500k in the near future, and they might only have fallen slightly to 510k in the week ending 15 November.
Leading indicators increased by 0.3% mom in September, mainly driven by real M2 and a temporary rebound in consumer expectations. However, we expect leading indicators to have fallen by up to 0.8% mom in October. The biggest negative contribution will have been made by stock prices, although an increase in real M2 and the steepening of the yield curve could have more than compensated for this. But consumer expectations, supplier deliveries, aggregate manufacturing working hours, building permits, orders and jobless claims will all have contributed negatively. The annual rate could fall back to -3.3 %, and the annualised 6-month rate might actually drop from -2.5% to -4.1%.
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