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Soft Patch Extending Its Run..


U.S. economic activity has cooled off notably. What better proof can we have for the softening than the non-farm payrolls report, which showed lackluster job growth for May. At the same time, wages remained almost flat. Chain store sales also slowed markedly in April. The first quarter growth received ample support from auto production, which alone added about a percentage point to growth, and conducive weather conditions. However, business capital spending slowed, as depreciation allowances expired. The second quarter cannot be any different.

That said, economists expect a pick up in the pace of growth after the second quarter, mainly due to a retreat in gasoline prices and a slow and steady recovery forecast for the housing market.

Even as hopes regarding a healthy pace of growth strengthen, economists also caution us of an imminent fiscal crisis. According to BMO Capital Markets, a number of very significant tax increases and spending cuts due to be triggered automatically on January 1st, 2013 could potentially reduce U.S. GDP by more than 3 percentage points, driving the economy into another recession. However, if the fiscal crisis is averted, the economy could possibly sail through clear waters and grow at a healthy pace.

Personal income rose 0.4 percent month-over-month in March compared to expectations for 0.3 percent growth. At the same time, personal spending increased by a smaller than expected 0.3 percent. The savings rate ticked up 0.1 percentage points to 3.8 percent. The core personal consumption expenditure price index rose 2 percent on a year-over-year basis.

The results of the Institute for Supply Management's national survey showed that its manufacturing purchasing managers' index rose 1.4 points to 54.8 in April. The new orders index rose by 3.7 points to 54.8 and the production index climbed by 2.7 points to 61. The employment index also improved, rising by 1.2 points to 57.3. Meanwhile, the order backlogs index fell 3 points to 49.5.

Meanwhile, the ISM-Chicago's manufacturing purchasing managers' index fell 6 points to 56.2 in April, marking the lowest reading since November 2009. The new orders index declined roughly 6 points to 57.4 and the production index fell 11.5 points to 57.1, while the order backlogs index rose 2.5 points. The employment index also improved, rising 2.4 points to 58.7.

At the same time, the Institute for Supply Management's survey showed that service sector activity expanded at a slower rate in April. The non-manufacturing index fell 2.5 points to 53.5 in April. The business activity index and the new orders index fell 4.3 points and 5.3 points, respectively to 54.6 and 53.5. Meanwhile, the backlog orders index rose 3.5 points to 53. The employment index also fell, dropping 2.5 points to 54.2.

Non-farm business sector labor productivity fell at an annual rate of 0.5 percent in the first quarter, according to a report released by the Labor Department. This marked the first drop in a year and came about due to a 3.2 percent increase in hours. Unit labor costs rose at a 2 percent annual rate.

U.S. construction spending edged up 0.1 percent month-over-month in March. Private construction spending climbed 0.7 percent, offsetting a 1.1 percent decline in public construction spending. Among private construction, residential construction spending by 0.7 percent.

Main Street would witness a lull in the unfolding week, as the week's calendar is interspersed by very few economic events that have the potential to move the markets. The weekly jobless claims report, the Commerce Department's trade balance report for March, preliminary reading of the Reuters and the University of Michigan's consumer sentiment index for May and a slew of Fed speeches are among the important events scheduled for the week.

The Federal Reserve's consumer credit report for March, the Commerce Department's wholesale inventories report for March, the import and export price indexes for April, the Labor Department's producer price inflation report for April and the Treasury auctions of 3-year, 10-year and 30-year bonds round up the economic events of the week.

The trade deficit is set to widen from the month-ago period, as higher oil prices may have lifted imports. That said, exports are also expected to increase, thanks to strong sales to the emerging markets. Nevertheless, export growth could be capped by the recessionary impact of the debt turmoil in the euro area.

The consumer sentiment reading based on the survey by Reuters and the University of Michigan could remain flat, as macroeconomic concerns and worries over the developments in the eurozone may be offset by the positive impact of the retreat in gasoline prices and the fairly buoyant equity market performance.


The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 pm ET. Consumer credit for March is expected to show an increase of $9.8 billion.

In February, outstanding consumer credit rose by $8.7 billion to $2.52 trillion, with a $11 billion increase in non-revolving credit offsetting a $2.2 billion decline in revolving credit tied to credit card loans.

Richmond Federal Reserve Bank President Jeffrey Lacker is due to speak to business and government executives and community leaders on "Technology, Unemployment and Workforce Development in a Rapidly Changing World," in Greensboro, North Carolina at 6 pm ET.


Lacker is due to hold a roundtable discussion with Guilfod Technical Community College students, in Greensboro, North Carolina at 9:45 am ET.

Dallas Federal Reserve Pres. Richard Fisher will speak to a business audience at the "Growth DFW" event sponsored by the Dallas Convention & Visitors Bureau and the Dallas Regional Chamber at 1:45 pm ET.


The Commerce Department is due to release its wholesale inventories report at 10 am ET. Economists expect wholesale inventories at the end of March to show a 0.6 percent increase.

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 Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 4th at 10:30 AM ET.

Crude oil inventories rose by 2.8 million barrels in the week ended April 27th. Inventories remained in the upper limit of the average range.

Distillate inventories fell by 1.9 million barrels and were in the middle of the average range for this time of the year. Gasoline inventories declined by 2 million barrels, remaining in the middle of the average range. Refinery capacity utilization averaged 84.8 percent over the four weeks ended April 27th compared to 84.7 percent over the previous four weeks.

Cleveland Federal Reserve Bank President Sandra Pianalto is scheduled to speak to the "Women Leading Kentucky, Women's Business and Leadership Conference" in Lexington, Kentucky at 10:45 am ET. Philadelphia Federal Reserve Bank President Charles Plosser will speak at the Bank's conference on "Reinventing Older Communities" at 12 pm ET.


Federal Reserve Chairman Ben Bernanke is scheduled to speak via satellite at the 48th Annual Conference on Bank Structure and Competition, sponsored by the Chicago Federal Reserve.

The trade gap data for March is due out at 8:30 am ET. Economists estimate that the trade gap widened to $49.5 billion in the month. The trade gap measures the difference between imports and exports of both tangible goods and services.

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.

The Labor Department is due to release its customary jobless claims report for the week ended May 5th at 8:30 AM ET. Economists expect claims to edge up to 366,000.

For the week ending April 28 initial unemployment claims came in at a seasonally adjusted level of 365,000, a drop of 27,000 from the previous week's revised figure of 392,000. And while the previous week's level of new claims was revised up from the 388,000 initially reported, the drop for the week of April 28 was larger than predicted by most economists who had expected to see new claims come in at 378,000.

The total number of people claiming unemployment benefits, a figure known as continuing claims, dropped 53,000 to a seasonally adjusted level of 3.276 million for the week ending April 21.

The export & import price indexes for March, 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 0.2 percent month-over-month drop in import prices and a 0.2 percent increase in export prices.

Prices of goods imported to the U.S. surged higher in March, driven by higher prices in both the fuel and non-fuel sectors. March saw a 1.3 percent increase in overall import prices, the largest monthly increase since April of 2011.

U.S. export prices also increased in March, rising by 0.8 percent, the largest increase since April of 2011. The export price growth exceeded the 0.3 percent increase predicted by most economists and came on top of the 0.4 percent increase in February.

Kansas City Federal Reserve Bank President Esther George will speak to the 21st Annual Hyman P. Minsky Conference on Debt, Deficits and Financial Instability at 9:30 am ET.

Minneapolis Federal Reserve Bank President Naryana Kocherlakota will speak to the Business Law Institute in Minneapolis on "Toward a More Transparent FOMC,' at 10 am ET.

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 $30 billion for April compared to a deficit of $198.2 billion for March.


The U.S. Labor Department is scheduled to release its report on the producer price index for April 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 April to remained unchanged, but the core producer price index may have declined by 0.2 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.

Fisher is scheduled to speak to the Texas Bankers Association 128th Annual Convention at 9:15 am ET.

The preliminary report of the Reuters/University of Michigan's consumer sentiment survey for May is scheduled to be released at 9.55 am ET. The consumer sentiment index is expected to edge down to 76.2 from 76.4 in April.

by RTTNews Staff Writer

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