The U.S. labor market has of course found a footing, while the doubt is whether the footing is slippery or firm. The sustainability of the labor market recovery depends on the robustness of job creation. According to FTN Financial, economic growth will continue to be tenuous until there is a sustainable rebound in the labor market and subsequent income growth to supplement consumer spending.
Even if income growth picks up, consumers are left to grapple with higher fuel costs, which are expected to eat into much of their earnings. That said, BMO Capital Markets highlights another aspect of rising oil prices. Higher prices have led to higher oil production, which in turn is offering the largest stimulus to growth and job creation since the recession began in 2007.
Greek-PSI agreement became a done deal last week after the debt swap saw a participation rate of 83.5 percent. Out of the 206 billion euros in debt, about 172 billion euro-worth of debt will be exchanged on a voluntary basis. The participation rate also allows the Greek government to activate the collective action clause, which would enforce participation by all creditors holding Greek bonds under Greek law. Such a move will increase the participation to 95.6 percent.
Meanwhile, the International Swaps and Derivatives Association ruled the debt swap deal as a credit event. This could trigger payout on $3.2 billion insurance contracts covering the nation's debt. The Eurogroup is set to meet again today to give final approval to the second bailout package for Greece, which will temporarily set in rest all apprehensions concerning a disorderly default by the Mediterranean nation.
Friday's U.S. non-farm payrolls report showed that payrolls expanded by 227,000 in February, the third straight month of job gains above 200,000. Private payrolls rose by 233,000. Employment in the manufacturing sector was up by 31,000, while the construction sector lost 13,000 jobs. The service sector added 209,000 jobs. Average hourly earnings edged up 0.1 percent month-over-month and were 1.9 higher from a year-ago.
Earlier last week, the ADP survey showed that 216,000 jobs were added by the private sector in February compared to the 173,000 jobs added in January, accentuating the return to health by the labor market.
A report released by the Federal Reserve showed that outstanding consumer credit rose by $17.8 billion or 8.6 percent to $2.51 trillion in January, with non-revolving credit surging up $20.7 billion or 14.7 percent. The component benefited from an unadjusted gain of $28 billion in student loans. Meanwhile, revolving credit tied to credit cards fell by $2.9 billion.
Suggesting strength, the Institute for Supply Management's service sector survey showed that activity in the sector expanded at a faster rate in February. The service sector index came in at 57.3 in February, up 0.5 points and also marking the highest reading in over a year. The business activity index climbed 3.1 points to 62.6, the new orders index was up 1.8 points to 61.2 and the order backlogs index rose 3.5 points to 53. Meanwhile, the employment index slid 1.7 points to 55.7.
A separate report from the Commerce Department showed a 1 percent drop in factory orders in January, although the decrease was smaller than the 1.6 percent drop forecast by economists.
Manufacturing and retail sales reports along with the FOMC meeting are likely to headline the economic events of the unfolding week. Traders may pay close attention to the Commerce Department's retail sales report for February, the result of the New York and Philadelphia Federal Reserves' March manufacturing surveys, the weekly jobless claims report and the Federal Reserve's industrial production report for February.
The markets may also stay tuned to the FOMC meeting, the preliminary consumer sentiment report of the Reuters and the University of Michigan and the producer and consumer price inflation reports for February. The Treasury Budget for February, the import and export price indexes for February and the results of the Treasury auction of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.
The FOMC meeting is expected to be a non-event, given the radical announcements made at the January meeting, where the central bank spelt out its interest rate and inflation targets. The Fed is expected to repeat its statement concerning economic conditions warranting exceptionally low interest rates at least until 2014. At the same time, the improvement seen in labor markets may prevent the central bank from making any commitment on further monetary policy easing.
Retail sales for February stand to benefit from a multiplicity of factors, including strong auto sales, higher gasoline station sales and healthy chain store sales. Even after excluding auto and gasoline, sales may have remained healthy in the month, as a relatively warmer weather pulls forward spring clothing and vehicle sales.
Industrial production is also expected is see some support from autos, while mining output may also have seen a rebound. The capacity utilization rate is expected to edge up slightly, in line with the recent trend, although it is expected to stay below levels that could pose inflation threats.
The Treasury Budget, a monthly account of the surplus or deficit of the federal government, is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists expect a deficit of $229 billion for February compared to a deficit of $27.4 billion for January.
Retail sales of food and retail companies with one or more establishments that sell merchandise and associated services to final consumers are slated to be released at 8:30 am ET. For February, economists estimate a 1.2 percent increase in retail sales and a 0.8 percent increase in retail sales that exclude autos.
U.S. retail sales rose by a less than expected 0.4 percent month-over-month in January. Excluding autos, sales were up 0.7 percent. Auto sales fell 1.1 percent despite solid monthly sales reported by the automakers, with the drop apparently reflecting lower prices. Core retail sales measured as sales excluding autos, gasoline and building materials, which are used in GDP calculations, were up a solid 0.7 percent.
The Commerce Department is scheduled to release its business inventories report for January at 10 am ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.5 percent increase in business inventories for the month.
Business inventories rose 0.4 percent month-over-month in December. Economists had expected a 0.5 percent increase for the month. Meanwhile, business sales rose 0.7 percent, resulting in an inventories-to-sales ratio of 1.26 in December compared to 1.28 in the year-ago period.
The Federal Open Market Committee is scheduled to begin a 1-day meeting to discuss the near term direction of monetary policy. The monetary policy-setting arm of the Federal Reserve is set to release a post-meeting policy statement at 2:15 pm ET.
Following the conclusion of the 2-day monetary policy meeting in January, the Federal Reserve said it expects economic conditions over the medium term to warrant exceptionally low levels for the federal funds rate at least through late 2014 compared to its earlier view of keeping interest rates unchanged till the middle of 2013.
Much of the remainder of the statement was maintained unchanged, while the central bank reiterated its commitment towards implementing its already announced bond buying program.
Updating its economic forecast, the Fed lowered the central tendency of its 2012 GDP forecast to 2.2-2.7 percent from 2.5-2.9 percent. The 2013 forecast was also lowered to 2.8-3.2 percent, but the 2014 forecast was upwardly revised to 3.3-4 percent from 3-3.9 percent.
The export & import price indexes for February, which gives the changes in the prices of non-military goods and services traded between the U.S. and the rest of the world, are due out at 8:30 am ET. The consensus estimates call for a 0.6 percent month-over-month increase in import prices and a 0.3 percent increase in export prices.
Federal Reserve Chairman Ben Bernanke is scheduled to speak to the Independent Community Bankers Association conference in Nashville at 9 am ET.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended March 9th at 10:30 am ET.
Crude oil stockpiles rose by 0.8 million barrels to 345.7 million barrels in the week ended March 2nd. Inventories were in the upper limit of the average range.
On the other hand, gasoline inventories fell by 0.4 million barrel and yet were in the upper limit of the average range. Distillate inventories were down a steeper1.9 million barrels, with inventories remaining in the middle of the average range. Refinery capacity utilization averaged 84.2 percent over the four weeks ended March 2nd compared to 84 percent over the previous four weeks.
The U.S. Labor Department is scheduled to release its report on the producer price index for February at 8:30 am ET. The index measures the average change over time in the prices received by domestic producers of goods and services. Economists expect the headline index for February to have risen by 0.5 percent and the core producer price index may have increased by 0.2 percent.
Producer prices for finished goods increased less than expected in January, increasing 0.1 percent, reversing the 0.1 percent decline posted in December.
Most economists had predicted a larger increase in the PPI, forecasting a 0.4 percent rebound in prices. Outside of the volatile food and energy sectors, the "core" producer price index edged up 0.4 percent in January, more than the 0.2 percent increase predicted by most economists.
The results of the New York Federal Reserve's empire state manufacturing survey, which elicits response from 200 manufacturing executives in New York state, is slated to be released at 8:30 am ET. The headline general business conditions index for March is expected to come in at 17.50.
Manufacturing conditions in the region continued to improve in February. The headline business conditions index rose to 19.5 from 13.5 in January. However, the new orders index fell by 4 points compared to a 1.5-point drop by the order backlogs index. The employment index also dipped slightly. Meanwhile, the 6-month outlook index declined 4.5 points.
The Labor Department is due to release its customary jobless claims report for the week ended March 10th at 8:30 am ET. Economists expect claims to decline to 355,000 in the recent reporting week.
DOL figures put the level of new jobless claims at a seasonally adjusted level of 362,000 for the week ending March 3, an increase of 8,000 from the previous week's revised figure of 354,000.
Additionally, the previous week's claims levels were revised up from the 351,000 initially reported. While most economists had predicted that new claims would hold level at the 351,000 level initially reported for the previous week, the figure still remains comfortably below the 400,000 level that most economists believe is the threshold for lowering the overall unemployment rate.
The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for January at 9 am ET.
The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 am ET. Economists expect the diffusion index of current activity to show a reading of 11.5 for March.
The Philadelphia Fed's manufacturing index rose to 10.2 in February from 9 in January. The internal details were, however, mixed. The new orders index rose about points and the order backlogs index climbed 6 points. The employment indexes were mixed, with the number of employees index dropping 10.5 points to 1, while the average workweek index rose to 5.1 points to 10.1. The 6-month outlook index declined to a 4-month low of 33.3.
The consumer price index for February is scheduled to be released at 8:30 am ET. The index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Economists expect the headline index to have increased 0.5 percent compared to a 0.2 percent increase in core inflation.
In January, the Consumer Price Index increased by 0.2 percent in January, following a 0 percent change in December. Most economists had forecast a slightly higher, 0.3 percent, increase for January.
The price increases were broadly spread across the economy, with "core" prices - excluding the volatile food and energy sectors, also rising 0.2 percent in January. Similarly the price indexes for both food and energy increased 0.2 percent. The market consensus correctly forecast the 0.2 percent in core price increases.
The Federal Reserve's industrial production report is due out at 9:15 am ET. Economists estimate 0.5 percent growth in industrial production for February.
Industrial output remained unchanged in January. The softness of the headline number reflected a 2.5 percent decline in utilities output. Mining output also fell 1.8 percent. Manufacturing output was up 0.7 percent, helped by 6.8 percent jump in motor vehicle output. Capacity utilization remained almost flat at 78.5 percent.
The preliminary report of the Reuters/University of Michigan's consumer sentiment survey for March is scheduled to be released at 9.55 am ET. The consumer sentiment index is expected to edge down to 75.3 from February's 76.
by RTT Staff Writer
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