Data Monitor US - Preview of the coming week

Data Monitor US - Preview of the coming week
Tuesday, 30 November
S&P/CASE SHILLER HOME PRICE INDEX

September CIB Cons. Aug July
In % yoy 1.6 1.3 1.7 3.2


The tentative upward trend in house prices has considerably lost momentum over the last six months. The widely followed S&P/Case Shiller index rose 1.7% between August 2009 and August 2010, much less than the 4.6% yoy still recorded for May. On a monthly basis, the Case Shiller index even declined again in July and August. An important factor behind this renewed weakness is probably the tax credit for homebuyers, which lifted prices in the spring and is now – after its expiration – weighing on valuations. We expect that house prices were flat in September, which would lower the yoy rate slightly further. In general, we continue to expect that huge (shadow) inventories of unsold homes will prevent any significant house price appreciation for the time being.

CONSUMER CONFIDENCE – CONFERENCE BOARD

November CIB Cons. Oct Sept
53.5 52.5 50.2 48.6



The Conference Board’s consumer confidence index confidence University of Michigan improved slightly in October, but only to the secondlowest level since February. For November, we expect a more pronounced increase (but to a still pitiful 53.5 points). The main driver should have been the somewhat better news from the labor market, such as higher employment gains and the decline in initial jobless claims. The Conference Board’s index, after all, puts particular emphasis on the employment and income situation of private households. Our expectation for a better mood among households is corroborated by the daily Rasmussen survey, which improved, particularly in the first half of November.


Wednesday, 1 December
ISM MANUFACTURING
November CIB Cons. Oct Sept
55.0 56.2 56.9 54.4


The manufacturing ISM has consistently been the single-most upbeat indicator for the US economy. While
it has considerably lost momentum since late spring, the manufacturing ISM jumped in October to the highest
level since May. The most encouraging detail of the October report was unequivocally an 8 point surge in the
forward-looking new orders. But despite this strong report, we continue to expect that the manufacturing
sector will keep losing momentum in late 2010/early 2011.

Behind this is mainly a slowdown in domestic activity. The inventory cycle has probably peaked, while weaker capital goods orders (ex aircraft) suggest that the brief investment boom is also tapering off. Ongoing support, on the other hand, is provided by solid foreign demand. Thus, we expect that the ISM eased to (a still high) 55 points in November.

BEIGE BOOK

The Beige Book summarizes comments received from businesses and other contacts in the twelve Fed districts. The latest report, released on October 20, stated, “national economic activity continued to rise, albeit at a modest pace.” We expect that the upcoming report will reiterate this cautious assessment. The overall tone of the upcoming report might be somewhat friendlier than in mid-October. The labor market situation – while still disappointing – has improved slightly of late. Companies added the most jobs since April and initial jobless claims (the 4W average) even dropped to the lowest level in more than two years. In addition, retail sales continued to rise solidly. The Beige Book might provide a hint about retailers’ expectations for the holiday season. The National Retail Federation said earlier that it expects holiday sales to rise about 2¼% in the current season (cf. my research note).


Friday, 3 December
MONTHLY EMPLOYMENT REPORT
November CIB Cons. Oct Sept
Nonfarm payrolls in k 150 145 151 -41
Unemployment rate in % 9.7 9.6 9.6 9.6


The situation on the US labor market has continued to improve gradually. After reaching the cyclical trough in
December 2009, private industries have re-created 1.1 million jobs, and the private employment gains in October were the largest since April. The recovery in the labor market was almost exclusively driven by a few service sectors. Employment gains in goods-producing industries, on the other hand, averaged a mere 11k per month since May, while government employment continued to decline (even apart from census layoffs).

While shortterm labor market indicators (e.g. initial jobless claims) have signaled some further improvement in the labor market situation, the crucial question for the upcoming employment report will be how much staff retailers  added for the holiday season. Seasonal factors, after all, expect retail employment to increase by about 350k in November.

While the outlook is cautiously optimistic (the NRF expects holiday sales to increase 2¼% yoy), retailers might be reluctant to add to their payrolls. This poses some downside risk to our forecast. We continue to expect the unemployment rate to edge up to 9.7% from an already high 9.6% (9.644%), as the increase in the labor force likely exceeds the pace of job creation.
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