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Growth Grinding Around Sub-par Pace


Last week brought in another batch of worrying economic numbers, with jobless claims data and new home sales among the disconcerting pieces of economic evidence. The 2-day Federal Reserve monetary policy meeting held last week sent mixed messages. Chairman Ben Bernanke left the door open for further stimulus measures should economic conditions deteriorate further, while the central bank nudged higher its economic growth forecast for 2012. There was also a slight upward shift in the rate trajectory compared with the January meeting.

The Fed maintained its economic assessment in its post-meeting policy statement, repeating its view that the economy has been expanding moderately. The Fed termed inflation as having picked up somewhat compared to its earlier view of a subdued inflationary environment. The central bank repeated its pledge to maintain a very accommodative monetary policy at least through late 2014.

In the updated economic forecasts released by the Fed, the central tendency GDP growth forecast for 2012 was upwardly revised to 2.4-2.9 percent from the previously estimated 2.2-2.7 percent. Meanwhile, estimates for 2013 and 2014 were trimmed slightly. The unemployment rate forecast for 2012 was also reduced to 7.8-8.0 percent from 8.2-8.5 percent, while the core PCE inflation forecast was upwardly revised to 1.8-2 percent from 1.5-1.8 percent.

Confounding the economic outlook further, the U.S. economy expanded at a lesser pace than had been expected. The GDP growth slowed to 2.2 percent from the 3 percent rate seen in the fourth quarter. Inventories contributed 0.6 percentage points to growth and on a net basis, exports did not contribute to growth. This meant that domestic demand grew at an anemic pace.

Housing readings released last week did not provide much clarity into the housing market outlook. New home sales for March came in at a seasonally adjusted annual rate of 328,000 compared to an upwardly revised reading of 353,000 for February. New home inventories measured in terms of months of supply rose to 5.3 months in March from 5 months in the previous month. The median price of a new home fell 1 percent from the previous month but was up 6.3 percent year-over-year to $234,500.

Meanwhile, National Association of Realtors' reported that its pending home sales index rose by 4.1 percent month-over-month in March. The previous month's reading was upwardly revised to show a 0.4 percent increase versus the 0.5 percent drop initially estimated. Pending home sales rose in the Northeast and the Midwest, while in the South and the West, sales declined.

The S&P Case-Shiller 20-city composite house price index rose a seasonally adjusted 0.15 percent month-over-month in February, while on a year-over-year basis, prices fell 3.49 percent.

The Conference Board's consumer confidence report showed that its U.S. consumer confidence index fell to 69.2 in April from a revised reading of 69.5 for March. The present situation index rose 1.5 points to 51.4, the highest level since September 2008, while the expectations index declined 1.4 points to 81.1.

Jobs and manufacturing reports are likely to be on the forefront in the unfolding week, as traders seek more clarity on the economic outlook. The markets are expected to closely track the monthly non-farm payrolls report for April, the ADP private sector employment report, the weekly jobless claims report and the results of the Institute for Supply Management's manufacturing and non-manufacturing surveys for April.

The ISM-Chicago's manufacturing survey, the Commerce Department's personal income and spending data for March, chain store sales and auto sales for April may also be on the radar. Several Fed speeches, the Commerce Department's construction spending report for March, the factory orders report for March, the Labor Department's preliminary read on first quarter productivity and costs 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.

The employment report is expected to reveal that the pace of job addition picked up in April after slowing notably in the previous month. The addition is likely to be in the private sector, while the government is expected to have continued its scaling back exercise. At the same time, the unemployment rate is expected to have remained stay put at 8.2 percent.

The manufacturing sector may have seen a modest slowdown in the pace of expansion in April, as seen from the results of the regional surveys. The sector continues to receive support from healthy export growth, although slower business spending due to the scaled back depreciation allowance is expected to crimp growth.


The Bureau of Economic Analysis is due to release its personal income & outlays report for March. Economists expect the report, which is due out at 8:30 am ET, to show that personal income rose 0.3 percent and personal spending increased by 0.4 percent.

In February, personal spending rose by 0.8 percent following an upwardly revised 0.4 percent increase in January. Economists had expected spending to increase by 0.6 percent compared to the 0.2 percent growth that had been reported for the previous month.

Meanwhile, personal income edged up by 0.2 percent in February, matching the downwardly revised increase seen in the previous month. Personal income had been expected to increase by 0.4 percent. As a result, personal saving as a percentage of disposable income tumbled to 3.7 percent in February from 4.3 percent in January

The results of the Institute of Supply Management-Chicago's business survey for April are scheduled to be released at 9:45 am ET. Economists expect the business barometer index based on the survey to slip to 60.8.

The 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.

Dallas Federal Reserve Bank President Richard Fisher is scheduled to participate in a Panel discussion at the 2012 Milken Institute Global Conference at 5:30 pm ET.


Richmond Federal Reserve Bank President Jeffrey Lacker will speak at the Bloomberg Washington Summit. Minneapolis Federal Reserve Bank President Naryana Kocherlakota is scheduled to speak to the Indian Country Summit at Federal Reserve headquarters in Washington on the subject, "What's Different About Indian Country Economic Development" at 9:30 am ET.

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 April.

The manufacturing purchasing managers' index rose to 53.4 in March from 52.4 in February. Of the 18 industries surveyed, 15 reported growth and two contracted. The new orders index declined 0.4 points yet remained above '50' at 54 and the production index rose 3 points to 58.3. The employment index also increased, rising 2.9 points to 56.1.

The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 0.5 percent increase in March.

U.S. construction spending unexpectedly fell 1.1 percent month-over-month in February. The previous month's reading was downwardly revised to show a drop of 0.8 percent compared to 0.1 percent drop estimated initially. Spending on private and public construction declined 0.8 percent and 1.7 percent, respectively. Among private construction, spending on residential construction remained unchanged, while spending on lodging, commercial, office and transportation construction declined.

San Francisco Federal Reserve Bank President John Williams is scheduled to speak to the Milken Institute 2012 Global Conference, in Beverly Hills at 11 am ET. Additionally, Chicago Federal Reserve President Charles Evans and Atlanta Fed President Dennis Lockhart will participate on a panel discussion on "The Limits of U.S. Monetary Policy" at the Milken Institute 2012 Global Conference, in Beverly Hills at 12:30 pm ET.

Philadelphia Federal Reserve President Charles Plosser is due to speak to the CFA Society of San Diego on the economic outlook, in San Diego at 2pm ET.

Individual automakers are scheduled to release their monthly U.S. sales results for April. 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 14.4 million for April, flat with last month.


Federal Reserve Governor Daniel Tarullo will speak to the Council on Foreign Relations, in New York at 8 am ET.

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 183,000 jobs by the sector in April following an addition of 209,000 jobs in March.

The Commerce Department is due to release its report on factory goods orders for March at 10 am ET. Economists estimate a 1.6 percent drop in orders for factory goods.

In February, factory orders rose by 1.3 percent month-over-month, with transportation orders providing a boost to the headline number. Shipments were up 0.1 percent and unfilled orders rose 1.3 percent.

Meanwhile, durable goods orders, which make up the bulk of factory orders, fell 4.2 percent month-over-month in March, with transportation orders serving as a drag. Even after transportation orders were excluded, overall orders dipped 1.1 percent. Non-defense capital goods orders, excluding aircrafts, considered a proxy for capital spending, declined 0.8 percent, while shipments of this category rose 2 percent.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended April 27that 10:30 am ET.

Crude oil stockpiles rose by 4 million barrels to 373 million barrels in the week ended April 20th but remained in the upper limit of the average range.

Gasoline inventories fell by 2.2 million barrels and remained in the upper limit of the average range. Distillate stockpiles also declined, dropping by 3.1 million barrels. Inventories of distillate stockpiles were in the middle of the average range. Refinery capacity utilization averaged 84.7 percent over the four weeks ended April 20th, flat with the previous four weeks.

Lacker is scheduled to speak to the Economics Club of Hampton Roads Economic Conference sponsored by Old Dominion University's College of Business and Public Administration on the "Economic Outlook, May 2012 at 12:30 pm ET


The Labor Department is due to release its customary jobless claims report for the week ended March 24th at 8:30 am ET. Economists expect claims to edge down to 378,000 in the recent reporting week.

New unemployment claims for the week ending April 21, came in at a seasonally adjusted level of 388,000. This marked a marginal drop of 1,000 new claims from the previous week's revised level of 389,000, which itself was revised up from the 386,000 initially reported. Most economists had forecast a somewhat significant drop in the level of new claims, predicting the figure would fall to roughly 375,000.

The U.S. Labor Department is also scheduled to release its preliminary report on fourth quarter non-farm productivity and unit labor costs at 8:30 AM. Economists expect productivity to have declined by 0.4 percent, but a 2.5 percent increase in unit labor costs.

Final fourth quarter estimates released in March showed that productivity increased by 0.9 percent in the fourth quarter compared to the initial estimate of 0.7 percent growth. With the upward revision, the pace of productivity growth in the quarter came in line with analyst estimates.

At the same time, unit labor costs jumped by 2.8 percent in the fourth quarter, reflecting a substantial upward revision from the 1.2 percent growth estimated earlier. Economists had expected the pace of labor cost growth to be unrevised.

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 56 for April.

The non-manufacturing index unexpectedly fell to 56 in March from 57.3 in February. The business activity index fell 3.7 points to 58.9 and the new orders index slid 2.4 points to 58.8. The order backlogs index slipped into contraction territory, declining to 49.5 from 53. Meanwhile, the employment index rose 1 point to 56.7.

Federal Reserve Bank Presidents Plosser, Dennis Lockhart of the Atlanta Fed and Williams are among the presenters at the University of California at Santa Barbara Economic Forecast Project 2012. The presentation is scheduled for 11 am ET.


The Labor Department is scheduled to release its monthly non-farm payroll report at 8:30 am ET. Economists expect non-farm payrolls for April to increase by 165,000 and the unemployment rate to remain unchanged at 8.2 percent.

The economy added 120,000 jobs in March, the smallest job gains in five months. The increase was far below the 2000,000 plus forecast by economists. The private sector added 121,000 jobs, while the government trimmed 1,000 jobs. Nevertheless, the jobless rate based on the household survey ticked down 0.1 points to 8.2 percent despite the number of employed people declining by 31,000.

by RTTNews Staff Writer

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