Key U.S. Data Releases and Events

Overall bank funding and trading conditions in the first quarter of 2009 were supportive of bank earnings, especially the money center banks, despite rising pressure from loan charge-offs. Mortgage activity also picked up. The U.S. Treasury announced on Friday, April 24, that U.S. banks in general had adequate capital to deal with the business cycle, but the results of the recent detailed "stress tests" would not be released until May 4.

Next week, earnings reports for the first-quarter will taper off, and markets will increasingly be driven by the perceived evolution of the business cycle. Early reports on the economy in the second quarter will be ambiguous. April consumer confidence readings and ISM indicators should see an improvement. However, motor vehicle sales are expected to retreat on continued difficult conditions in the employment markets and downward pressure on compensation.

On Wednesday, we will get the advance report on first-quarter GDP, and that is expected to show a sharp 6.5% decline in real output, with severe weakness in housing, business fixed investment, and inventories. That will be followed on the same day by the press release from the April 29 meeting of the FOMC, where interest rates are expected to remain unchanged, but the Fed may make some adjustments to the composition of its asset purchases.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, April 28 – Conference Board Consumer Confidence (Apr.)

• IHS Global Insight: 35.0
• Consensus: 29.0
• Last Actual: 26.0 (Mar.)

What to Look For

• Consumer confidence is expected to rebound solidly to a level of 35.0.

Implications

Consumer attitudes have perked up in April. The Conference Board's Consumer Confidence Index is expected to rebound from 26.0 in March to 35.0 in April, approaching its January level. 

Wednesday, April 29 – Real Gross Domestic Product (Advance Q1)

• IHS Global Insight: -6.5%
• Consensus: -5.0%
• Last Actual: -6.3% (Final Q4)

What to Look For

• Real GDP is expected to fall sharply again in the first quarter, dropping 6.5%, roughly the same as the 6.3% decline in the fourth quarter of 2008.

Implications

Although consumer spending is expected to increase slightly (up 1.4%), after steep declines in the second half of 2008, all other key spending categories should drop sharply. Business fixed investment and residential construction are both expected to fall more than 30% (annual rates), while government spending (both federal and state/local) will likely also be down. Both exports and imports should also drop more than 30%, although the import decline will be steeper, meaning that trade will add more than 1.0 percentage point to growth overall. Apart from the consumer spending increase, the most encouraging news is likely to be a sharp decrease in inventories. We expect that inventory reductions will subtract more than 2.0 percentage points from GDP growth. This will not complete the inventory adjustment, but it is an important step towards bringing inventories under control and bringing the period of production free-fall to an end.

Wednesday, April 29 – FOMC Rate Decision

• IHS Global Insight: 0.00–0.25%
• Consensus: 0.00–0.25%
• Last Actual: 0.00–0.25%

What to Look For

• The FOMC is expected to vote to keep the 0.0–0.25% range for the federal funds rate unchanged at its meeting on April 29.

Implications

Picking up on the themes from the recent Beige Book, the Federal Reserve is likely to refer to some tentative signs of reduced rates of contraction, or stabilization, in the economy, but greater downward pressure on wages and product prices. However, the Fed will have to soft pedal any positive signs, as the real GDP report expected ahead of the press release will show a sharp 6.5% drop in first-quarter output. Downward cyclical pressures are still formidable. The Fed may adjust the composition of its on balance-sheet programs, with possibly higher volumes of long-term Treasuries in view of a huge budget funding schedule over the next several months.

Thursday, April 30 – Personal Income, Consumption, and Prices (Mar.)

Personal Consumption, Nominal

• IHS Global Insight: -0.2%
• Consensus: -0.1%
• Last Actual: +0.2% (Feb.)

Personal Consumption, Real

• IHS Global Insight: -0.1%
• Last Actual: -0.2% (Feb.)

Core PCE Price Index

• IHS Global Insight: +0.2%
• Consensus: +0.1%
• Last Actual: +0.2% (Feb.)

Personal Income

• IHS Global Insight: -0.3%
• Consensus: -0.2%
• Last Actual: -0.2% (Feb.)

What to Look For

• Personal income expected to drop 0.3%, primarily in response to lower hours-worked.
• Consumer spending fell by 0.2% (or 0.1% adjusted for inflation).
• Core PCE index to be up 0.2%, but half of this increase is connected with tobacco taxes.

Implications

Wage and salary disbursements will be down in March, given the March employment report, which showed hours declining by 1.0%, while the hourly week increased by 0.2%. "Control" retail sales were down 0.9%. But auto sales were up, and spending on services was probably flat, just as in February. Added up, we expect that consumer spending fell 0.2% in March; adjusted for inflation, spending was down 0.1%. Real consumer spending is likely to post a small gain (1.3% is our estimate) in the first quarter, because the January and February gains in control retail sales were revised up (control retail sales are sales that feed into the GDP accounts). Real spending is likely to drop in the second quarter, however, because the economy is still losing jobs at a rapid rate, and not creating the income needed for a sustained recovery. Core price inflation will come in at 0.2% for the third month in a row. The big story here is tobacco prices, which will boost core inflation a tenth of a percentage point. The tobacco excise tax hike to fund the expansion of children's health insurance didn't take effect until April 1, but cigarette manufacturers knew that would prompt a surge in demand to beat the tax hike, and took advantage by raising prices in advance. Without the tobacco hike, the core CPI would have risen about 0.1%

Friday, May 1 – Michigan Consumer Sentiment Index (Final Apr.)

• IHS Global Insight: 62.0
• Consensus: 61.7
• Last Actual: 61.9 (Preliminary Apr.)

What to Look For

• The Reuters/University of Michigan Index of Consumer Sentiment should average 62.0 in April, confirming the preliminary reading of 61.9 and improving on the March level of 57.3.

Implications

The stock market rally of the past six weeks is strengthening household balance sheets and brightening expectations for the economy a bit. The housing market is also showing tentative signs of improvement. Despite improving sentiment, real consumer spending is expected to decline slightly in the spring quarter, as mounting job losses restrain discretionary purchases.

Friday, May 1 – ISM Manufacturing Index (Apr.)

• IHS Global Insight: 38.3
• Consensus: 38.0
• Last Actual: 36.3 (Mar.)

What to Look For

• We expect to see a mild upward bounce in the index, by about 2 points.

Implications

The ISM manufacturing report should show a bounce in April. The worst phase of the business-cycle contraction and the adverse inventory cycle are likely behind us, while export orders are showing some signs of improvement from extremely depressed levels.

Friday, May 1 – Motor Vehicle Sales (Apr.)

• IHS Global Insight: 9.1 Mil.
• Consensus: 9.6 Mil.
• Last Actual: 9.9 Mil. (Mar.)

What to Look For

• Motor vehicle sales should retreat to 9.1-million units (annual rate).

Implications

Although incentive levels are likely to remain at all-time highs, persistent economic uncertainty—along with GM and Chrysler bankruptcy and restructuring talks reaching a fever pitch—will continue to weigh against consumers and keep auto sales pinned down around of 9.1-million units.