Monday, March 30, 2009

US Economic Indicators Preview

(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%.


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