(Week of 30 March to 5 April 2009)
- ISM indices (Mar): indicating ongoing economic contraction
- Consumer confidence (Mar): slight rebound after record plunge
- Labour market (Mar): non-farm payrolls could have declined even more markedly
Consumer confidence plunged from 37.4 to a record low of 25.0 in February, with expectations deteriorating more than the current assessment. The drop was even sharper than indicated by the decrease in the University of Michigan's (UMI) consumer sentiment, because the deterioration in the labour market carries more weight in the Conference Board's survey. Although employment prospects have not brightened, we forecast that, given the marginal improvement in the UMI's indicator, consumer confidence will have gone up to 27.0 in March.
Pending home sales went down by 7.7% mom in January, and thus the annual rate dropped from +1,3% to -6.4%. After this significant deterioration, we expect them to have stopped falling in February. The downward trend in pending home sales might be moderating due to the incentives in the government's homeowner affordability and stability plan. Moreover, the housing affordability index rose to a new record high in January.
The regional March manufacturing surveys have been mixed so far: the Richmond Fed index was far less negative than in February, the New York Empire index fell to a new record low, whereas the Philadelphia Fed index rose, but its relevant components showed a significant deterioration. The Chicago PMI is expected to have stagnated in March. All in all, the ISM manufacturing index, which had improved in the previous two months, could have fallen back from 35.8 to 34.5 in March, particularly as small business optimism has not stabilised, but has continued to fall in the first two months.
As the graph shows, the ISM non-manufacturing index has remained on a noticeably higher level than its manufacturing counterpart so far, but we expect the still wide gap to have narrowed, and thus the ISM nonmanufacturing index could have decreased to about 41.0 in March.
Construction spending fell sharply by 3.3% mom in January, and in addition, significant downward revisions were announced for the previous months. Housing starts and the NAHB index improved in February, albeit remaining very low, and the significant downward trend in commercial construction is likely to have continued. We therefore forecast that construction spending will have decreased significantly again in February, by 2.5% mom.
Factory orders were reported to have fallen by 1.9% mom in January, but due to a sharp downward revision in durable goods orders, they are more likely to have gone down by at least 3%. However, they could have improved somewhat by about 1.5% mom in February: we already know that durable goods orders rose by 3.4% mom, mainly as a result of a rebound in defense orders. But non-durable goods orders, which rose marginally in January, could have remained stable at best, despite the increase in energy prices, due to the ISM orders component still being on a very low level (33.1).
Initial jobless claims went up by 8k to 652k in the week ending 21 March, but the rise in continuing claims by 122k to 5.56m was more impressive. We expect jobless claims to have totalled 655k in the week ending 28 March, close to their current 4-week moving average.
Non-farm payrolls might have fallen by 660k in March, which would correspond to the average of the previous three months. The current catastrophic employment situation is unprecedented. Unemployment is rising rapidly; within a year, the unemployment rate has surged from 4.8% to 8.1%. As the graph shows, people are finding it much harder to get jobs. The unemployment rate is thus expected to have increased further to about 8.5% in March. In this environment, average hourly earnings are only likely to have gone up by 0.2% mom again, lowering the annual rate from 3.6% to 3.4%.
BHF-BANK http://www.bhf-bank.com
This report has been prepared by BHF-BANK Aktiengesellschaft on behalf of itself and its affiliated companies (together "BHFBANK Group") solely for the information of its clients.
The information and opinions in this document are based on sources believed to be reliable and acting in good faith, but no representation or warranty, express or implied, is made by any member of the BHF-BANK Group as to their accuracy, completeness or correctness. Opinions and recommendations are given in good faith but without legal responsibility and are subject to change without notice. The information does not constitute advice or personal recommendation, for which the duty of suitability would be owed, but may facilitate your own investment decision. Moreover, you should seek your own advice as to the suitability of an investment matter mentioned herein. Investors are reminded that the price of securities and the income from them can go down as well as up and that the past performance of an investment or a market is not necessarily indicative for future results.
This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete, and this document is not, and should not be construed as, an offer to sell or solicitation of any offer to buy the securities mentioned in it. BHF-BANK Group and its officers and employees may have a long or short position or engage in transactions in any of the securities mentioned in this document, or in any related securities.
