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Oil Prices - Emerging Ancillary Threat?


Greek default worries are currently being supplanted by a graver threat that has the potential to upset the global growth apple cart. Oil prices have been climbing sharply and steadily in recent weeks, with the black gold ending last week at a 10-month high. Along with oil, gas prices have also begun skyrocketing, pinching the pockets of consumers, who have showed surprising resilience despite the fragility of the economic recovery.

According to BMO Capital Markets gasoline accounts for about 4 percent of personal consumption in the U.S. and the price of gasoline is estimated to exceed the $5 per gallon level, given the consistent increase in oil prices since September 2011. Every 10 percent increase in gas prices would mean that 0.4 percent of spending is either rerouted to gasoline or savings are drawn. Such a development does not bode well for consumer spending, which has been seeing a volatile trend.

Meanwhile, the turmoil across the Atlantic may be far from over. After European leaders negotiated an agreement to release funding for Greece, the G20 leaders were relatively intransigent. The G20 finance ministers and central bank governors, who met over the weekend, called for further enhancement of Eurozone's bailout fund before the rest of the G20 nations can consider increasing their contribution to the International Monetary Fund's resources.

That said, recent data points have suggested a definitive upturn that is real and has come to stay. Existing home sales surged up 4.3 percent month-over-month in January, while economists had expected a much more modest increase. Single-family home sales rose 3.8 percent compared to an 8.3 percent jump in the sales of condominiums. Inventories of existing homes fell 0.4 percent to 2.31 million homes, while inventories measured in terms of months of supply also declined to a 6-year low of 6.1 months. The median price of an existing home fell 4.6 percent month-over-month to $154.7 million.

Meanwhile, new home sales unexpectedly fell by 0.9 percent month-over-month to 321,000 in January, marking the first decline in five months. Nevertheless, offsetting some of the negativity, there were upward revisions to the numbers of the previous three months.

The Reuters and the University of Michigan upwardly revised their preliminary consumer sentiment reading for February to 75.3, representing a 1-year high.

Main Street will once again be bustling with activity in the unfolding week after last week's relative calm. Some of the market moving first tier economic reports that the markets could closely track are the National Association of Realtors' pending home sales index for January, the Commerce Department's durable goods orders report for January, the ISM-Chicago's business barometer for February, the Institute for Supply Management's national manufacturing survey for February, the weekly jobless claims report and the Conference Board's consumer confidence index for February

Traders may also focus on the Commerce Department's personal income and outlays report for January, the auto sales for February, the Federal Reserve's Beige Book and several Fed speeches scheduled for the week. The S&P Case-Shiller home price index for December, the preliminary fourth quarter GDP report and two regional manufacturing surveys round up the economic events of the week.

Going by the results of the regional manufacturing surveys for February released thus far, the Institute for Supply Management's manufacturing index may most likely increase modestly. Production is expected to see a shot in the arm from firmer new orders seen in January.

Personal income is expected to benefit from the improvement seen in the labor market recently. The gain in payrolls points to a pick up in income levels, offering scope for an improvement in demand. Meanwhile, spending growth is expected to be strong in the month.

Consumer confidence may have received support from the improving labor market conditions, although rising gasoline prices could engender some worries among consumers. Consequently, confidence is likely to have improved only modestly.


Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to have risen 1.5 percent in January.

In December, pending home sales fell 3.5 percent month-over-month. Sales declined in the South, West and Northeast, while the Midwest experienced a modest increase.

The results of a regional manufacturing survey carried out by the Dallas Federal Reserve are due to be released at 10:30 am ET. The business activity index based on the survey is expected to edge down to 15 in February from 15.3 in January.


The Commerce Department is set to release its durable goods orders report, which gives the value of orders placed for goods designed to last for more than 3 years, at 8:30 am ET. Economists expect a 0.7 percent drop in durable goods orders for January.

In December, new orders for durable goods rose 3 percent month-over-month following a 4.2 percent drop in November. The bulk of the increase was due to a 5.4 percent surge in transportation equipment orders. Some of these gains could reverse, as Boeing (BA) reported 150 aircraft orders for January compared to 287 for December.

The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 am. Economists expect a seasonally adjusted 0.4 percent month-over-month drop in the 20-city composite house price index for December.

In December, the S&P Case-Shiller home price index fell 0.7 percent month-over-month, declining for the third straight month. Annually, prices were down 3.7 percent.

The Conference Board is scheduled to release its consumer confidence report for February at 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index rose to 64 in February.

The consumer confidence index fell 3.7 points to 61.1 in January. The present situation index slipped 8.1 points to 38.4 and the expectations index edged down 0.8 points to 76.2.

The Richmond Federal Reserve's manufacturing index due to be released at 10 am ET is expected to see a 1-point improvement to 13 in February.

Cleveland Federal Reserve Bank President Sandra Pianalto is due to speak to the Medini County Economic Development Corporation annual meeting, on the subject of the "Prospects for the Nation and the Region" at 7:15 pm ET.


The Bureau of Economic Analysis is due to release its preliminary estimate of fourth quarter GDP at 8:30 am ET. Economists expect the GDP estimate to be left unrevised at 2.8 percent.

Advance estimates showed that the U.S. economy expanded by 2.8 percent in the final quarter of 2011. According to the Commerce Department, the increase in GDP was driven by increases in private inventories, consumer spending and residential fixed investments. Those increases were partially offset by a slowing of nonresidential fixed investments, a downturn in federal spending and an increase in imports.

Dallas Federal Reserve Bank President Richard Fisher will speak to the Bolsa Mexicana on the "U.S. Economic Overview" and may answer questions from the audience and will answer questions from the media, in Mexico City at 9:30 am ET.

The results of the Institute of Supply Management-Chicago's business survey for February are scheduled to be released at 9:45 am ET. Economists expect the business barometer index based on the survey to slip to 61.

In January, the index dipped to 60.2 from 62.2 in December. The new orders index fell to 63.6 from 67.1, while the order backlogs index retreated into contraction zone, dropping to 48.3. Additionally, the employment index fell 5.4 points to 59.2.

Federal Reserve Chairman Ben Bernanke is schedule to deliver the FOMC's semi-annual report to the House Financial Services Committee at 10 am ET.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended February 24th at 10:30 am ET.

Crude oil stockpiles rose by 1.6 million barrels to 340.7 million barrels in the week ended February 17th. Inventories remained in the upper limit of the average range.

Meanwhile, gasoline inventories fell by 0.6 million barrels and yet were in the upper limit of the average range. Distillate stockpiles edged down by 0.2 million barrels and were in the middle of the average range. Refinery capacity utilization averaged 83.5 percent over the four weeks ended February 17th compared to 82.7 percent in the previous week.

Philadelphia Federal Reserve Bank President Charles Plosser will speak to the Forecasters Club on "A Perspective on Forecasting" in New York at 12 pm ET.

The Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.


Individual automakers are scheduled to release their monthly U.S. sales results for February. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month. Economists expect domestic vehicle sales of 14 million for February compared to 14.2 million in January.

Pianalto is due to speak to the City Club of Cleveland Business Leaders Series on the subject of "Keys to Growth for the Nation and the Region," answering questions from the audience and later, from the media. The speech is scheduled for 8 am ET.

The Labor Department is due to release its customary jobless claims report for the week ended February 25th at 8:30 am ET. Economists expect claims to edge up to 355,000 from 351,000 in the previous week.

The seasonally adjusted level of new claims for unemployment at 351,000 for the week ending February 18th, essentially unchanged from the previous week's revised figure of 351,000. Although the previous week's figure was revised up from the 348,000 initially reported, both weekly claims numbers remain the lowest since early March 2008. Most economists had forecast an uptick in the low level of new jobless claims, predicting a level of 355,000.

The Bureau of Economic Analysis is due to release its personal income & outlays report for January. Economists expect the report, which is due out at 8:30 am ET, to show that personal income rose 0.5 percent and personal spending increased by 0.4 percent.

Personal income increased $61.3 billion in December, a 0.5 percent increase over November levels. While most economists had expected a relatively robust increase in personal incomes, the market consensus had pegged it as a 0.4 percent increase. However, despite the increase in incomes, consumer spending dipped unexpectedly in December, falling less than 0.1 percent. Most economists had expected consumer spending to hold up with the 0.1 percent increase recorded in November.

The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 am ET. Economists expect the index to show a reading of 54.6 for February.

The headline manufacturing index rose to 54.1 in January from 53.1 in December. The new orders rose 3 points to 57.6 and the order backlogs index climbed 4.5 points to 52.5. Meanwhile, the employment index eased 0.5 points to 54.3. However, out of 18 industries surveyed only 9 reported expansion.

The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 1 percent increase in January.

Construction spending rose 1.5 percent month-over-month in December, marking the fourth increase in a row. Non-residential construction spending climbed 3.3 percent, while non-residential construction spending also increased from the previous month.

Federal Reserve Governor Sarah Bloom Raskin, who is a FOMC Voting Member, is due to give "Economic Outlook" at the Y's Men and Y's Women of Westport, Connecticut at10: 30 am ET.

Atlanta Federal Reserve Bank President Dennis Lockhart is due to speak to the Atlanta Fed's Banking Industry Outlook Conference on the economy and banking at 12:30 am ET, taking questions from the audience and then the media.

San Francisco Federal Reserve President John Williams will discuss the economy on a panel at the Hawaii CFA Economic Forecast Dinner at 10 pm ET, taking questions from the audience and later, from the media, in Honolulu


St. Louis Federal Reserve Bank President James Bullard is scheduled to speak to the BMO Bank of Montreal Lecture in Economics on "The U.S. economy in the Aftermath of the Financial Crisis" in Vancouver at 8 pm ET.

by RTTNews Staff Writer

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