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Caution Becomes Watchword As Recovery Proves Slippery

Caution Becomes Watchword As Recovery Proves Slippery

After a string of positive data points, we started receiving some lukewarm economic numbers last week. These numbers raised concerns about the sustainability of the economic recovery. That said, most economists unequivocally share the view that the domestic economic recovery will not be derailed and the worst that can happen is a modest downshift in growth in the first quarter. Despite issuing a relatively upbeat assessment of the economy, Federal Reserve Chairman still suggested last week that accommodative monetary policy will be maintained in the near as well as medium term.

Does that signal the chairman's lack of faith in the domestic economy? Many view the stance as being cautious, given the proliferation of potential downside risk. The eurozone debt crisis, which looked settled with last week's agreement to enhance the firepower of the region's rescue fund, may raise its ugly head any time, given the fiscal fragility of many peripheral nations. Additionally, rising oil prices present a threat to even a well entrenched recovery. Against this backdrop, the central bank has to stand ready with ammunitions to step in when warranted.

Last week, the National Association of Realtors reported that U.S. pending home sales fell 0.5 percent month-over-month in February, while economists had been expecting a 1 percent increase. Pending home sales were lower in all regions except the Mid-west. Meanwhile, pending home sales were about 9.2 percent higher than a year ago.

Meanwhile, the S&P Case-Shiller house price index fell a seasonally unadjusted 0.8 percent in January. However, after adjustments, house prices were flat. On a year-over-year basis, house prices were down 3.8 percent.

Personal spending rose a better than expected 0.8 percent month-over-month in February. Spending was up a solid 0.5 percent in real terms. Spending on autos, clothing, shoes and recreational good and services supported the headline number. Meanwhile, personal income rose a modest 0.2 percent. The personal savings rate edged down 0.6 points to 3.7 percent.

The results of ISM-Chicago's survey showed that its business barometer declined to 62.2 in March from 64 in February. The new orders index fell by 6 points to 63.3, while the order backlogs index edged up 0.7 points. Meanwhile, the employment component slipped 8 points to 56.3.

The consumer confidence readings released last week were mixed. The Conference Board reported that its consumer confidence index declined 1.4 points to 70.2 in March from an upwardly revised reading for February. The expectations index slipped 4.6 points to 83, while the present situation index rose 4.6 points to 51.

At the same time, the final reading based on a survey by Reuters and the University of Michigan's survey showed that the consumer sentiment index for March was upwardly revised to 76.2.

Employment and manufacturing readings are likely to take center stage in the unfolding week, as economic anxiety has returned following most recent data points that have questioned the strength of the recovery. Traders may closely watch the March non-farm payrolls report to be released on Friday, the ADP's private sector employment report, the weekly jobless claims report and the results of the Institute for Supply Management's manufacturing and service sector reports.

The FOMC minutes, some Fed speeches the Federal Reserve's consumer credit report for January and monthly auto sales may also create some ripples in the market. The Commerce Department's construction spending report for February, the factory goods orders report and announcements concerning the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

Employment growth may have continued in March, although the pace of job additions could have slowed down. The government sector is expected to continue slashing jobs, while the warm weather may have led to a healthy addition of construction jobs.

The Institute for Supply Management's manufacturing survey is expected to suggest a faster rate of expansion, underpinned by the solid performance of the auto industry. Manufacturing activity may also have received support from export growth and robust business spending. The service sector index is expected to see some moderation.

Monday

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 53 for March.

Manufacturing activity continued to expand in February, although at a slower pace. The headline manufacturing purchasing managers' index fell by 1.7 points to 52.4. The new orders index fell 1.7 points to 54.9 and the production index edged down 0.4 points to 55.3. The employment index was down about a point at 53.2.

The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 0.7 percent increase in February.

Construction spending fell 0.1 percent month-over-month in January following a 1.4 percent increase in December. Spending on private construction remained unchanged compared to a 0.2 percent drop in spending on public construction. In the private construction category, weakness in the lodging, office, commercial and transportation categories was offset by strength in residential construction.

St. Louis Federal Reserve Bank will release the March 28 remarks of President James Bullard to a monetary policy conference at Tsinghua University in Beijing that was closed to the press at 10 am ET. Cleveland Federal Reserve Bank President Sandra Pianalto is scheduled to speak to the Economic Roundtable of the Ohio Valley and will take questions from the audience, in Marietta, Ohio at 12:35 pm ET.

Tuesday

Individual automakers are scheduled to release their monthly U.S. sales results for March. 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 14.7 million for March compared to 15.1 million in February.

The Commerce Department is due to release its report on factory goods orders for February at 10 am ET. Economists estimate a 1.5 percent increase in orders for factory goods.

Durable goods orders, which make up the bulk of factory goods, rose by a less than expected 2.2 percent in February compared to the previous month. That said, even after excluding transportation orders, which rose 3.9 percent, order growth came in at 1.6 percent. Non-defense capital goods orders, excluding aircrafts, often considered a proxy for capital spending, rose 1.2 percent and shipments of this category of goods edged up 0.5 percent.

Meanwhile, factory goods orders fell 1 percent month-over-month in January, while shipments, unfilled orders and inventories rose 0.9 percent, 0.6 percent and 0.6 percent, respectively. The soft headline reading reflected declines in transportation and machinery orders.

The Federal Reserve is due to release the minutes of its March 13th meeting at 2 pm ET.

The post-meeting policy statement released following the March meeting noted a moderate expansion in overall economic activity, further improvement in labor market conditions and a notable drop in the unemployment rate. The central bank also made a reference to rising crude prices while discussing inflation. The Fed's assessment of economic growth over the coming quarters was upgraded to 'moderate' from 'modest.'

As expected, the central bank maintained the fed funds target rate at 0-0.25 percent and repeated its intention to maintain rates at exceptionally low levels at least until 2014. The Fed also expressed its commitment to continue with its asset purchase program.

San Francisco Federal Reserve Bank President John Williams is due to participate in a San Francisco University Symposium simulating an FOMC meeting at 4:05 pm ET. He will take questions from local reporters

Wednesday

The ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 am ET. The report is usually released two days prior to the Labor Department's employment report. The consensus expectations are for an addition of 208,000 jobs by the sector in March following an addition of 170,000 jobs in February.

The Institute for Supply Management is scheduled to release the results of its non-manufacturing survey at 10 am ET. The non-manufacturing index is likely to show a reading of 57 for March.

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.

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

Crude oil stockpiles rose by 7.1 million barrels to 353.4 million barrels in the week ended March 23rd. Inventories remained in the upper limit of the average range. Gasoline inventories fell by 3.5 million barrels but still remained in the upper limit of the average range.

Distillate stockpiles also fell, dropping by 0.7 million barrels, and remained in the middle the average range. Refinery capacity utilization averaged 83.3 percent over the four weeks ended March 23rd compared to 83.1 percent over the previous four weeks.

Williams is scheduled to speak to San Francisco Planning and Urban Research business breakfast at 11 am ET. Afterward he will take questions from the audience and the media.

Thursday

The Labor Department is due to release its customary jobless claims report for the week ended March 31st at 8:30 am ET. Economists expect claims to edge up to 360,000 from 359,000 in the previous week.

Jobless claims for the week ended March 24th came in above economist estimates due to an upward revision to the previous week's data. Jobless claims edged down to 359,000 from the previous week's revised figure of 364,000. Economists had expected claims to edge up to 350,000 from the 348,000 originally reported for the previous week.

St. Louis Federal Reserve Bank President James Bullard is scheduled to speak to the 13th Annual InvestMidwest Venture Capital Forum, on "The U.S. Economy and Monetary Policy," in St. Louis at 9:10 am ET. He will also take questions from the audience and the press

Friday

The Labor Department is scheduled to release its monthly non-farm payroll report at 8:30 am ET. Economists expect non-farm payrolls for March to increase by 201,000 and the unemployment rate to remain unchanged at 8.3 percent.

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.

The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 pm ET. Consumer credit for January is expected to show an increase of $12 billion.

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.

by RTT Staff Writer

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