The quirky fate of the economy proved to be the undoing of the markets last week. After cruising along fine for some time, the U.S. economy began showing signs of slackening, sending panic waves across markets. Non-farm payroll growth sagged to a 120,000 rate in March, and distorted by Easter holidays, jobless claims rose to a 10-week high. However, the positive take away from the data points is that they have been mixed rather than being weak.
Aluminum maker Alcoa (AA) kick started the earnings season with forecast beating results and outlook for firm Aluminum demand. Despite the positive start, expectations are muted. Earnings of companies in the S&P 500 Index are expected to grow at a little more than 3 percent year-over-year rate in the first quarter compared to 9.2 percent in the year-ago period.
Meanwhile, developments happening overseas are also unsettling. The euro debt crisis is far from over and is expected to continue for a long time. The fiscal situation in Spain is worrisome, which is reflected by the spike in Spanish bond yields. Economists also see a contagion threat to Italy. China, which was powering global growth to some extent, is also seeing a slowdown in domestic economic activity.
The past week's economic data can largely be termed as mixed. The U.S. trade deficit narrowed more than expected in February, marking the first decrease since October. The trade deficit narrowed to $46 billion in February, although exports rose a mere 0.1 percent compared to the previous month. However, imports fell 2.7 percent.
Helped by benign oil and food prices, headline producer inflation remained unchanged in March compared to the previous month. Energy prices declined 1 percent, while food prices were up just 0.2 percent. The year-over-year rate of the producer price inflation was 2.8 percent. Excluding food and energy prices, the core producer price index rose a bigger than expected 0.3 percent.
Meanwhile, consumer price inflation came in at 0.3 percent in March, with energy prices rising 0.9 percent and food prices climbing 0.2 percent. The core consumer price inflation rate was 0.2 percent.
Belying expectations, the mid-month reading of the Reuters/University of Michigan's consumer sentiment index unexpectedly fell 0.5 percentage points to 75.7, marking the first drop since August.
The Beige Book released by the Federal Reserve last week showed that the economy continued to expand at a modest to moderate pace from mid-February through late March. Manufacturing activity was termed as expanding and demand for professional business services showed modest to strong growth. The report noted that retail spending was positive. According to the Beige Book, hiring was steady or showed a modest increase across many districts.
The wholesale inventories report showed that wholesale sales rose 1.2 percent month-over-month in February. At the same time, wholesale inventories climbed a more modest 0.9 percent, although the increase was better than expected. The inventories to sales ratio remained unchanged at 1.17 in February compared to the year-ago period.
The re-emergence of economic fears may force traders direct their unwavering focus on the unfolding week's key economic events. The Commerce Department's retail sales report for March, the results of the manufacturing surveys of the New York and Philadelphia Federal Reserves, the Federal Reserve's industrial production report for March and the weekly jobless claims report are among the closely watched reports of the week.
A few housing readings such as the National Association of Home Builders' housing market index for April, the housing starts report for March and the National Association of Realtors' existing home sales report for March may also provide clarity on the economic outlook. The Commerce Department's business inventories report for February, the Conference Board's leading economic indicators index for March, a coupe of Fed speeches and announcements concerning the Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.
Housing starts may have seen a small increase due to the onset of an early spring. The anticipated improvement reflects stabilization of demand and replenishment of record low inventories. BMO Capital Market notes strong investment demand for multiple-unit dwellings. Overall, the firm expects residential construction to have risen at a 12 percent annualized rare in the first quarter, contributing 0.3 percentage points to GDP growth.
After remaining flat in February, industrial output growth may have picked up pace in March, with manufacturing and mining output offering support. Meanwhile, warmed than normal March may have snuffed out demand for utilities.
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 March, economists estimate a 0.3 percent increase in retail sales and a 0.6 percent increase in retail sales that exclude autos. Sales, excluding autos and gasoline, may have risen 0.5 percent.
In February, retail sales rose 1.1 percent month-over-month, while the previous month's 0.4 percent increase was upwardly revised to 0.6 percent. Auto sales climbed 1.9 percent, offering support to the headline number. Gas station sales rose 3.3 percent. The strength was broad based, with clothing & accessories and building materials also showing firmness. On the other hand, furniture sales slid 1.2 percent. Core retail sales, excluding autos, gas and building materials, which are used in GDP calculations, rose 0.5 percent.
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 April is expected to come in at 18.
The region's manufacturing activity picked up pace in March. The business activity index based on the survey rose to 20.21 in March from 19.53 in February. However, the new orders index slipped 2.89 points to 6.84 and the shipments index declined 4.58 points to 18.21. On the other hand, the employment indexes improved from the month-ago levels.
The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for February at 9 am ET.
The Commerce Department is scheduled to release its business inventories report for February 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 0.6 percent increase in business inventories for the month.
Business inventories rose 0.7 percent month-over-month in January and were up 7.6 percent from a year-ago. Meanwhile, business sales rose 0.4 percent compared to the previous month and accordingly, the business inventories to sales ratio was at 1.27 compared to 1.26 in January 2011.
The National Association of Homebuilders is scheduled to release the results of its April survey on homebuilders' confidence at 10 am ET. The consensus estimates call for the index to increase to 29.
The housing market index remained flat at 28 in March following 5 straight months of gains. The index is still at its highest level since June 2007. The present conditions index fell 1 point, while the sales expectations index rose 2 points and the index measuring prospective buyer traffic remained unchanged at 22.
Cleveland Federal Reserve Bank President Sandra Pianalto is scheduled to speak about "Communication -- a Key to Value-Added Supervision" at a "Day with the Commissioner" event in Lexington, Kentucky at 12:30 Pm ET. Additionally, St. Louis Federal Reserve Bank President James Bullard will deliver the George Eccles Memorial Lecture, on "The U.S. Economy and Monetary Policy" at 3:30 pm ET.
A report on housing starts, which refer to the number of privately-owned new homes on which construction has been started over some period, and building permits, which are the number of permits issued for new housing units each month, is slated to be released at 8:30 am ET. Economists estimate housing starts for March to come in at 700,000 each, while building permits are expected to have declined to 713,000.
U.S. housing starts fell by 1.1 percent month-over-month to 698,000 in February. However, the negativity was offset by an upward revision to the previous month's starts to 706,000. A 9.9 percent drop in single-family starts more than offset a 26.2 percent increase in multi-family starts. At the same time, building permits jumped 5.1 percent to 717,000, the highest level since October 2008.
The Federal Reserve's industrial production report is due out at 9:15 am ET. Economists estimate 0.3 percent growth in industrial production for March, while manufacturing output growth is also estimated at 0.3 percent. Capacity utilization may have edged down slightly to 78.6 percent.
Industrial production remained unchanged in February compared to the previous month compared to expectations for 0.4 percent growth. Offer some consolation was an upward revision to the previous month's reading. Motor vehicle and parts production slipped 1.1 percent and mining output extended its slide, dropping 1.2 percent. Capacity utilization edged down to 78.7 percent.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended April 13th at 10:30 am ET.
Crude oil inventories rose by 2.8 million barrels to 365.2 million barrels in the week ended April 6th. Inventories were in the upper limit of the average range.
Gasoline stockpiles fell by 4.3 million barrels yet remained in the upper limit of the average range. Meanwhile distillate stockpiles fell by 4 million barrels, dropping to the middle of the average range. Refinery capacity utilization averaged 84 percent over the four weeks ended April 6th compared to 83.8 percent over the previous four weeks.
The Labor Department is due to release its customary jobless claims report for the week ended April 14th at 8:30 am ET. Economists expect claims to decline to 365,000 in the recent reporting week.
First-time claims for U.S. unemployment benefits showed a notable increase in the week ended April 7th, with the data raising some concerns about the outlook for the jobs market. Initial jobless claims rose to 380,000 from the previous week's revised figure of 367,000. Economists had expected jobless claims to edge up to 359,000 from the 357,000 originally reported for the previous week.
The National Association of Realtors is scheduled to release its report on existing home sales for March at 10 am ET. Economists estimate existing home sales of 4.62 million for the month.
U.S. existing home sales fell 0.9 percent month-over-month to 4.59 million units. Meanwhile, the previous month's reading was upwardly revised by 1.3 percent. Single-family home sales fell 1 percent, while condominium sales remained unchanged. The median price of an existing home rose 0.3 percent year-over-year to $156,600.
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 12 for April.
The Philadelphia Fed's manufacturing index rose to 12.5 in March from 10.2 in February. The new orders index slipped 3.3 points to 11.7 and the order backlogs index slipped to -11 from 2.2. The shipments index was down 11.5 points. While the number of employees index rose 5.7 points to 6.8, the average workweek index slid 7.4 points to 2.7. The 6-month outlook index edged down 0.4 points to 32.9.
The Conference Board is scheduled to release a report on the U.S. leading economic indicators index for March at 10 am ET. The consensus estimate calls for a 0.2 percent increase in the leading indicators index for the month.
In February, the leading economic indicators index rose 0.7 percent month-over-month following 0.2 percent increase in January and a 0.5 percent increase in December. While the coincident and the lagging economic indicators indexes were up 0.2 percent each.
There are no important economic reports due for release on Friday.
by RTT Staff Writer
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