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Tuesday, January 27
9:00AM - Conference Board Consumer Confidence
Release Details
* Importance (A-F): This release merits a B-.
* Source: The Conference Board.
* Release Time: 10:00 ET on the last Tuesday of the month (data for current month).
* Raw Data Available At: Global Business Cycle Indicators Member Website - The Conference Board.
The Conference Board conducts a monthly survey of 5000 households to ascertain the level of consumer confidence. The report can occasionally be helpful in predicting sudden shifts in consumption patterns, though most small changes in the index are just noise. Only index changes of at least five points should be considered significant. The index consists of two subindexes - consumers' appraisal of current conditions and their expectations for the future. Expectations make up 60% of the total index, with current conditions accounting for the other 40%. The expectations index is typically seen as having better leading indicator qualities than the current conditions index.
Big Picture
* Consumer sentiment indices get way too much attention. The simple fact is that sentiment does not correlate with consumer spending and thus has little predictive value. Consumer spending correlates more closely with income. Sentiment tends to reflect well known factors such as unemployment rates and gas prices more than it predicts future spending patterns.
Thursday, January 29
8:30AM - Durable Goods Orders
Release Details
* Importance (A-F): This release merits a B.
* Source: The Census Bureau of the Department of Commerce.
* Release Time: 8:30 ET around the 26th of the month (data for month prior).
* Raw Data Available At: Manufacturers' Shipments, Inventories, & Orders (M3).
The durable orders release measures the dollar volume of orders, shipments, and unfilled orders of durable goods (defined as goods whose intended lifespan is three years or more). Orders are considered a leading indicator of manufacturing activity, and the market often moves on this report despite the volatility and large revisions that make it a less than perfect indicator. These problems can be minimized by looking at the breakdown of orders. The total number is often skewed by huge increases in aircraft and defense orders. An increase based solely on strength in one sector tends to be discounted, while the market is more impressed with broadbased increases in orders.
Also notable in this report is the narrow category of nondefense capital goods. These goods mirror the GDP category producers' durable equipment (PDE) -- the largest component of business investment. Shipments of nondefense capital goods are a good proxy for PDE in the current quarter, while nondefense capital goods orders provide an indication of PDE growth in the quarters ahead.
Highlights
* Durable goods orders have declined significantly over the past three months and there is no reason to expect anything different for November. Businessess are retrenching sharply and orders are declining across the board.
Big Picture
* Durable goods orders are trending sharply lower. Durable goods orders, and total factory orders (which include nondurables orders), had shown surprising strength given overall economic conditions. Now, however, the widespread broadcast of an economic crisis has manufacturing firms pulling back. In addition, the weak dollar has turned stronger. The weak dollar has been a huge boost to US exports and durable goods orders. This impact will fade over late 2008 and early 2009. The manufacturing sector, which had been extremely resilient, will now probably head into a sectoral recession.
Friday, January 30
08:30AM - GDP: Gross Domestic Product
Release Details
* Importance (A-F): This release merits a B.
* Source: Bureau of Economic Analysis, U.S. Department of Commerce.
* Release Time: Third or fourth week of the month at 8:30 ET for the prior quarter, with subsequent revisions released in the second and third months of the quarter.
* Raw Data Available At: http://www.bea.doc.gov/bea/dn1.htm.
Gross Domestic Product (GDP) is the the broadest measure of economic activity. Annualized quarterly percent changes in GDP reflect the growth rate of total economic output. The figures can be quite volatile from quarter to quarter. Inventory and net export swings in particular can produce significant volatility in GDP. The final sales figure, which excludes inventories, can sometimes be helpful in identifying underlying growth trends as inventories represent unsold goods, and a large inventory increase will boost GDP but might be indicative of weakness rather than strength. The broad components of GDP are: consumption, investment, net exports, government purchases, and inventories. Consumption is by far the largest component, totalling roughly 2/3rds of GDP.
In addition to the GDP figures, there are GDP deflators, which measure the change in prices in total GDP and for each component. Though the consumer price index is a more closely watched inflation indicator, the GDP deflator is another key inflation measure. Unlike CPI, it has the advantage of not being a fixed basket of goods and services, so that changes in consumption patterns or the introduction of new goods and services will be reflected in the deflator.
With both GDP and the deflator, the market tends to focus on the quarter/quarter change. Year/year changes are also cited frequently, though they do not provide the most timely indications of economic activity or inflation. The bond market often reacts to GDP, though the price moves are typically small, as much of the GDP data is easily predicted using monthly economic releases such as personal consumption, durable goods shipments, construction spending, international trade, and inventories.
Quarterly GDP reports are broken down into three announcements: advance, preliminary, and final. After the final revision, GDP is not revised again until the annual benchmark revisions each July. These revisions can be quite large and usually affect the past five years of data.
Highlights
* Raw Data Available At: BEA: News Release: Gross Domestic Product and Corporate Profits
Key Factors
* The second revision to GDP typically produces only minor adjustments to the data. Expectations are for no change from the -0.5% annualized real GDP change previously reported.
* Below are the comments from the data at -0.5% as reported November 25:
* Real personal consumption expenditures (PCE) fell at a 3.7% annual rate in the third quarter. This is the critical component for GDP, and the outlook is not good. October real personal consumption expenditures fell 0.5%, suggesting that another large decline in real PCE in the fourth quarter is likely.
* Net exports added 1.1% to real GDP growth in the third quarter. That is about the average boost to GDP over the past few years. It isn't going to continue, however, as demand for exports is weakening due to soft overseas economies and the strengthening in the dollar.
* Nonresidential investment has weakened. Nonresidential construction added to GDP in the third quarter, but that is not likely to continue. Investment in software and equipment fell for the third straight quarter and early signs are the the fourth quarter will be very weak.
* Residential construction trends remain, not surprisingly, very weak.
* Inventories and government spending may help the fourth quarter GDP number, but the overall trends in the key components are very bad heading into the final quarter of the year. Fourth quarter real GDP will be down big.
Big Picture
* The trends in the economy were moderately poor through the summer. Then, in September, the trends tanked along with the stock market. Some tech firms noted a significant dropoff in demand right after the mini-panic of mid-September. These worsening trends will be apparent in the fourth quarter GDP numbers, and probably into 2009 as well. Consumer spending is weakening and will only take a significant turn for the better once the declines in payroll moderate. Business investment is also in retreat. The stronger dollar is now weakening export demand as well. A lot now depends on overall psychology and perceptions of how well the government responds to the financial market and other problems such as exist in the auto industry. There is not yet much concern about the huge looming federal deficits, but that will probably become a topic as the next fiscal stimulus package is enacted in 2009. The economic outlook is now as much a function of government action as it is of the traditional correlations and trends among macro-economic variables.
9:45AM - Chicago PMI
Release Details
* Importance (A-F): The Chicago PMI merits a B.
* Source: Chicago Purchasing Managers Association.
* Release Time: Last business day of the month at 10 ET for the current month.
In Brief
There are many regional manufacturing surveys, and they tend to be ranked in order of timeliness and the importance of the region. The New York and Philadelphia Fed's surveys are the first each month followed by the Chicago purchasing managers' report on the last day of each month. A few, such as the Atlanta and Richmond Fed surveys, are released after the ISM and are of little value. The purchasing managers' reports are measured like the national ISM -- 50% marks the breakeven line between an expanding and contracting manufacturing sector. For the New York, Philadelphia and Atlanta Fed indexes, 0 is the breakeven mark. These surveys can be of some help in forecasting the national ISM.
Big Picture
* The Chicago PMI has little overal economic value, and is only watched by the financial markets because it is usually released one day in advance of the similar national ISM manufacturing survey. A significant move in this regional survey will therefore sometimes be seen as having predictive value for the ISM index.
09:55 - University of Michigan Consumer Sentiment Index
Release Details
* Importance (A-F): This release merits a B-.
* Source: The University of Michigan.
* Release Time: Preliminary: 10:00 ET on the second Friday of the month (data for current month); Final: 10:00 ET on the fourth Friday of the month (data for current month).
The Michigan index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two subindexes - expectations and current conditions. The expectations index is a component of the Conference Board's Leading Indicators index.
Big Picture
* Sentiment readings are a reflection of a variety of events rather than an accurate tool for forecasting consumer spending. Gas prices and political events can have an outsized impact on sentiment. In general, these data are of very little economic value. Sentiment has been low all year despite rising consumer spending. This broken clock will now happen to reflect the correct time. The consumer will be pulling back.
10:00 - Employment Cost Index
Release Details
* Importance (A-F): This release merits a B .
* Source: U.S. Department of Labor, Bureau of Labor Statistics
* Release Time: 8:30 ET, near the end of the first month of the quarter for the prior quarter.
* Raw Data Available At: Employment Cost Index.
In Brief
Since the employment cost index was mentioned by Fed Chairman Greenspan in July 1996, it has risen into the upper echelon of economic reports in the eyes of the bond market. Its lagging nature still leaves it as a less timely indicator of employment cost trends than the monthly hourly earnings data in the employment report. But the ECI does add something to this picture: an adjustment for shifting employment between industries, and a look at benefit costs. These additions are interesting, but typically do not alter the view of the employment cost picture which was left by hourly earnings. ECI will be much less closely watched during periods when wage inflation is not a serious market concern.
The market focusses on the quarter/quarter and year/year changes in each of three categories: total employment costs, wages and salaries, and benefit costs. The figures are sometimes skewed by large year-end bonuses in the financial industry; analysts often exclude the sales commission component of wages and salaries to adjust for this factor.
Highlights
* Employment costs remained well contained in the third quarter. This augers very well for the inflation outlook. The lack of significant cost pressures from employment, coupled with falling commodity prices, sets the stage for very low inflation through the end of 2008.
* The year-over-year increase in total employment costs fell to 2.9%. Productivity runs at about 2% over the long term. The current trend in employment costs therefore suggests about 1% unit labor cost pressures.
* The cost of benefits has slowed significantly in recent years. It is up at only a 2.6% annual rate over the past year. This measure was running at over 6% for most of 2004 and 2005.
* Employment costs are likely to remain in check for quite a while, given the soft labor market.
Big Picture
* Employment costs are the major component of business costs. The trend in these data therefore have important implications for cost-push inflationary pressures and for profit margins. In recent quarters, the trend has been relatively steady to lower. The year-over-year total increase in the ECI has now dropped below 3% for the first time in years. Weak overall demand in the economy should keep the ECI cost index on the current trend. At 2.9% this does not represent much inflationary pressure, as productivity gains of close to 2% leave unit labor costs rising at a modest pace near 1%. Now, with commodity prices having turned lower and economic demand softening, there simply is not much overall inflationary pressure at all.
9:00AM - Conference Board Consumer Confidence
Release Details
* Importance (A-F): This release merits a B-.
* Source: The Conference Board.
* Release Time: 10:00 ET on the last Tuesday of the month (data for current month).
* Raw Data Available At: Global Business Cycle Indicators Member Website - The Conference Board.
The Conference Board conducts a monthly survey of 5000 households to ascertain the level of consumer confidence. The report can occasionally be helpful in predicting sudden shifts in consumption patterns, though most small changes in the index are just noise. Only index changes of at least five points should be considered significant. The index consists of two subindexes - consumers' appraisal of current conditions and their expectations for the future. Expectations make up 60% of the total index, with current conditions accounting for the other 40%. The expectations index is typically seen as having better leading indicator qualities than the current conditions index.
Big Picture
* Consumer sentiment indices get way too much attention. The simple fact is that sentiment does not correlate with consumer spending and thus has little predictive value. Consumer spending correlates more closely with income. Sentiment tends to reflect well known factors such as unemployment rates and gas prices more than it predicts future spending patterns.
Thursday, January 29
8:30AM - Durable Goods Orders
Release Details
* Importance (A-F): This release merits a B.
* Source: The Census Bureau of the Department of Commerce.
* Release Time: 8:30 ET around the 26th of the month (data for month prior).
* Raw Data Available At: Manufacturers' Shipments, Inventories, & Orders (M3).
The durable orders release measures the dollar volume of orders, shipments, and unfilled orders of durable goods (defined as goods whose intended lifespan is three years or more). Orders are considered a leading indicator of manufacturing activity, and the market often moves on this report despite the volatility and large revisions that make it a less than perfect indicator. These problems can be minimized by looking at the breakdown of orders. The total number is often skewed by huge increases in aircraft and defense orders. An increase based solely on strength in one sector tends to be discounted, while the market is more impressed with broadbased increases in orders.
Also notable in this report is the narrow category of nondefense capital goods. These goods mirror the GDP category producers' durable equipment (PDE) -- the largest component of business investment. Shipments of nondefense capital goods are a good proxy for PDE in the current quarter, while nondefense capital goods orders provide an indication of PDE growth in the quarters ahead.
Highlights
* Durable goods orders have declined significantly over the past three months and there is no reason to expect anything different for November. Businessess are retrenching sharply and orders are declining across the board.
Big Picture
* Durable goods orders are trending sharply lower. Durable goods orders, and total factory orders (which include nondurables orders), had shown surprising strength given overall economic conditions. Now, however, the widespread broadcast of an economic crisis has manufacturing firms pulling back. In addition, the weak dollar has turned stronger. The weak dollar has been a huge boost to US exports and durable goods orders. This impact will fade over late 2008 and early 2009. The manufacturing sector, which had been extremely resilient, will now probably head into a sectoral recession.
Friday, January 30
08:30AM - GDP: Gross Domestic Product
Release Details
* Importance (A-F): This release merits a B.
* Source: Bureau of Economic Analysis, U.S. Department of Commerce.
* Release Time: Third or fourth week of the month at 8:30 ET for the prior quarter, with subsequent revisions released in the second and third months of the quarter.
* Raw Data Available At: http://www.bea.doc.gov/bea/dn1.htm.
Gross Domestic Product (GDP) is the the broadest measure of economic activity. Annualized quarterly percent changes in GDP reflect the growth rate of total economic output. The figures can be quite volatile from quarter to quarter. Inventory and net export swings in particular can produce significant volatility in GDP. The final sales figure, which excludes inventories, can sometimes be helpful in identifying underlying growth trends as inventories represent unsold goods, and a large inventory increase will boost GDP but might be indicative of weakness rather than strength. The broad components of GDP are: consumption, investment, net exports, government purchases, and inventories. Consumption is by far the largest component, totalling roughly 2/3rds of GDP.
In addition to the GDP figures, there are GDP deflators, which measure the change in prices in total GDP and for each component. Though the consumer price index is a more closely watched inflation indicator, the GDP deflator is another key inflation measure. Unlike CPI, it has the advantage of not being a fixed basket of goods and services, so that changes in consumption patterns or the introduction of new goods and services will be reflected in the deflator.
With both GDP and the deflator, the market tends to focus on the quarter/quarter change. Year/year changes are also cited frequently, though they do not provide the most timely indications of economic activity or inflation. The bond market often reacts to GDP, though the price moves are typically small, as much of the GDP data is easily predicted using monthly economic releases such as personal consumption, durable goods shipments, construction spending, international trade, and inventories.
Quarterly GDP reports are broken down into three announcements: advance, preliminary, and final. After the final revision, GDP is not revised again until the annual benchmark revisions each July. These revisions can be quite large and usually affect the past five years of data.
Highlights
* Raw Data Available At: BEA: News Release: Gross Domestic Product and Corporate Profits
Key Factors
* The second revision to GDP typically produces only minor adjustments to the data. Expectations are for no change from the -0.5% annualized real GDP change previously reported.
* Below are the comments from the data at -0.5% as reported November 25:
* Real personal consumption expenditures (PCE) fell at a 3.7% annual rate in the third quarter. This is the critical component for GDP, and the outlook is not good. October real personal consumption expenditures fell 0.5%, suggesting that another large decline in real PCE in the fourth quarter is likely.
* Net exports added 1.1% to real GDP growth in the third quarter. That is about the average boost to GDP over the past few years. It isn't going to continue, however, as demand for exports is weakening due to soft overseas economies and the strengthening in the dollar.
* Nonresidential investment has weakened. Nonresidential construction added to GDP in the third quarter, but that is not likely to continue. Investment in software and equipment fell for the third straight quarter and early signs are the the fourth quarter will be very weak.
* Residential construction trends remain, not surprisingly, very weak.
* Inventories and government spending may help the fourth quarter GDP number, but the overall trends in the key components are very bad heading into the final quarter of the year. Fourth quarter real GDP will be down big.
Big Picture
* The trends in the economy were moderately poor through the summer. Then, in September, the trends tanked along with the stock market. Some tech firms noted a significant dropoff in demand right after the mini-panic of mid-September. These worsening trends will be apparent in the fourth quarter GDP numbers, and probably into 2009 as well. Consumer spending is weakening and will only take a significant turn for the better once the declines in payroll moderate. Business investment is also in retreat. The stronger dollar is now weakening export demand as well. A lot now depends on overall psychology and perceptions of how well the government responds to the financial market and other problems such as exist in the auto industry. There is not yet much concern about the huge looming federal deficits, but that will probably become a topic as the next fiscal stimulus package is enacted in 2009. The economic outlook is now as much a function of government action as it is of the traditional correlations and trends among macro-economic variables.
9:45AM - Chicago PMI
Release Details
* Importance (A-F): The Chicago PMI merits a B.
* Source: Chicago Purchasing Managers Association.
* Release Time: Last business day of the month at 10 ET for the current month.
In Brief
There are many regional manufacturing surveys, and they tend to be ranked in order of timeliness and the importance of the region. The New York and Philadelphia Fed's surveys are the first each month followed by the Chicago purchasing managers' report on the last day of each month. A few, such as the Atlanta and Richmond Fed surveys, are released after the ISM and are of little value. The purchasing managers' reports are measured like the national ISM -- 50% marks the breakeven line between an expanding and contracting manufacturing sector. For the New York, Philadelphia and Atlanta Fed indexes, 0 is the breakeven mark. These surveys can be of some help in forecasting the national ISM.
Big Picture
* The Chicago PMI has little overal economic value, and is only watched by the financial markets because it is usually released one day in advance of the similar national ISM manufacturing survey. A significant move in this regional survey will therefore sometimes be seen as having predictive value for the ISM index.
09:55 - University of Michigan Consumer Sentiment Index
Release Details
* Importance (A-F): This release merits a B-.
* Source: The University of Michigan.
* Release Time: Preliminary: 10:00 ET on the second Friday of the month (data for current month); Final: 10:00 ET on the fourth Friday of the month (data for current month).
The Michigan index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two subindexes - expectations and current conditions. The expectations index is a component of the Conference Board's Leading Indicators index.
Big Picture
* Sentiment readings are a reflection of a variety of events rather than an accurate tool for forecasting consumer spending. Gas prices and political events can have an outsized impact on sentiment. In general, these data are of very little economic value. Sentiment has been low all year despite rising consumer spending. This broken clock will now happen to reflect the correct time. The consumer will be pulling back.
10:00 - Employment Cost Index
Release Details
* Importance (A-F): This release merits a B .
* Source: U.S. Department of Labor, Bureau of Labor Statistics
* Release Time: 8:30 ET, near the end of the first month of the quarter for the prior quarter.
* Raw Data Available At: Employment Cost Index.
In Brief
Since the employment cost index was mentioned by Fed Chairman Greenspan in July 1996, it has risen into the upper echelon of economic reports in the eyes of the bond market. Its lagging nature still leaves it as a less timely indicator of employment cost trends than the monthly hourly earnings data in the employment report. But the ECI does add something to this picture: an adjustment for shifting employment between industries, and a look at benefit costs. These additions are interesting, but typically do not alter the view of the employment cost picture which was left by hourly earnings. ECI will be much less closely watched during periods when wage inflation is not a serious market concern.
The market focusses on the quarter/quarter and year/year changes in each of three categories: total employment costs, wages and salaries, and benefit costs. The figures are sometimes skewed by large year-end bonuses in the financial industry; analysts often exclude the sales commission component of wages and salaries to adjust for this factor.
Highlights
* Employment costs remained well contained in the third quarter. This augers very well for the inflation outlook. The lack of significant cost pressures from employment, coupled with falling commodity prices, sets the stage for very low inflation through the end of 2008.
* The year-over-year increase in total employment costs fell to 2.9%. Productivity runs at about 2% over the long term. The current trend in employment costs therefore suggests about 1% unit labor cost pressures.
* The cost of benefits has slowed significantly in recent years. It is up at only a 2.6% annual rate over the past year. This measure was running at over 6% for most of 2004 and 2005.
* Employment costs are likely to remain in check for quite a while, given the soft labor market.
Big Picture
* Employment costs are the major component of business costs. The trend in these data therefore have important implications for cost-push inflationary pressures and for profit margins. In recent quarters, the trend has been relatively steady to lower. The year-over-year total increase in the ECI has now dropped below 3% for the first time in years. Weak overall demand in the economy should keep the ECI cost index on the current trend. At 2.9% this does not represent much inflationary pressure, as productivity gains of close to 2% leave unit labor costs rising at a modest pace near 1%. Now, with commodity prices having turned lower and economic demand softening, there simply is not much overall inflationary pressure at all.
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