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MONEYWATCH
Prepared by MCM, Inc.
Previews for the Week of November 27, 2000
Focus: Existing Home Sales, due November 27, at 15.00GMT/3.00pm
Oct e Sept Aug Jul June Unit Sales (mln) 5.10 5.14 5.28 4.82 5.31 m/m% change -0.7 -2.7 9.5 -9.2 4.3 Median Price (000s) $143.0 $141.8 $143.2 $143.3 $140.2 Though home sales continue volatile on a monthly basis, there is some evidence the market is settling down around a 5.1 mln unit annual pace of sales in mid-2000. The decline in mortgage rates through September ended in October, an event that often brings in the last of the hold-out buyers who were looking for lower mortgage rates. It is not altogether clear that there are many buyers holding out this year. A slight rise in the inventory of used homes for sale to 1.7 mln, however, does clear the way for a better sales month in October. Similarly, the Home Builders survey for October and November show considerable strength in the housing sector. There is no real reason to look for a marked slowing in sales in the near term.
Focus: Durable Goods, due November 28, at 13.30GMT/8.30am
% Change m/m Oct e Sept Aug Jul Jun Orders -0.5 1.8 3.5 -13.2 9.2 Orders ex trans. 0.0 0.8 2.5 -5.5 0.1 Non-Def Cap Gds 0.0 2.6 5.3 -12.2 16.6 Shipments -1.0 0.2 0.9 -2.5 1.3 After 2 months of reasonable gains, orders are due for a modest pullback. A 2% decline in domestic vehicle sales in October points to a drop in transport orders and will probably be enough to assure a headline decline as well. That said, the rise in factory employment in October gives little reason to look for a big decline. Sales of household durable goods have been reasonably healthy, also supporting non-transport orders. Capital goods orders have been on something of a tear since the July slump, and are probably due for a rest. Capital goods orders from Europe remain tepid, non-Japan Asian orders are picking up, but probably cannot sustain higher oil prices and concerns about demand from the US much longer.
Focus: Preliminary Q3 GDP, due November 29, at 13.30GMT/8.30am
Q3 e Q3 Adv Q2 Q1 4Q"99 GDP 2.0 2.7 5.6 4.8 8.3 Implicit Price Deflator 1.9 2.0 2.4 3.1 1.3 Personal Spending 4.3 4.5 3.1 7.6 5.9 Final Sales 2.4 2.7 3.5 6.7 6.4 All the data since the advance GDP release point to a downward revision to output growth estimate. The sharp rise in the US trade deficit in September, unanticipated in the advance release of Q3 GDP, along with an upward revision to the August deficit, point to a downward revision to GDP. Similarly, the retail sales data for early Q3 were revised lower by a slight amount, while inventory growth was slower than anticipated in the first cut at the data. In all, that should cut into personal spending, final sales and GDP, in varying amounts. Given that import prices have lagged the rise in CPI, there is a good chance for a modest downward revision to the deflator as a result of higher than anticipated import levels.
Focus: Personal Income, due November 30, at 13.30GMT/8.30am
% change m/m Oct e Sept Aug Jul Jun Income 0.0 1.1 0.4 0.3 0.5 Disposable Income 0.1 1.1 0.2 0.2 0.4 Consumption 0.3 0.8 0.5 0.6 0.5 Savings Rate -0.2 -0.1 -0.4 -0.1 0.3 Farm subsidy payments accounted for more than half the rise in income in September, making the October income figure vulnerable to a sharp slowing, as that level of subsidy is unlikely two months running. With income likely to have slowed, the savings rate is in jeopardy of falling again. A 0.4% rise in hourly earnings and a 0.1% drop in the workweek would make for about a 0.3% rise in income, all else equal. With farm subsidies likely off and non-hourly incentives probably slack as well (retail sales and stock prices both worse in October, meaning lower sales commissions), that 0.3% will likely be whittled down to nothing. Retail sales rose just +0.1% in October (vs 0.9% in September, so overall consumption growth must have slowed as well, but not enough to prevent the savings rate from slipping. The newly negative savings rate must rise at some point, but there is no real urgency, assuming incomes continue rising and credit to households remains available in abundance.
Focus: Construction Spending, due December 1, at 15.00GMT/10.00am
$ bln Oct e Sept Aug Jul Jun Total 824.4 819.3 800.3 783.5 798.9 m/m % change 0.6 2.4 1.8 -1.6 -1.6 Private 0.5 2.1 1 -2 -0.9 Public 1.0 3.5 4.5 -0.1 -4.1 The housing sector remains a drain on construction spending, as the trend slowing in housing starts suggests. It is public sector and commercial building that has pushed the tally higher in the past couple of reports. Public sector construction outlays have been far behind schedule all year, so a rebound is hardly a surprise - look for more. The private sector spending spree on commercial buildings is an iffier proposition. For now, commercial starts have been healthy, so there is not reason to look for a slowing in October. However, the risk of slower growth in consumption and business formation may already have slowed commercial starts.
Focus: NAPM, due December 1, at 15.00GMT/10.00am
Nov Oct Sept Aug Jul Jun NAPM Index 49.5 48.3 49.9 49.5 51.8 51.8 Prices 55.0 56.5 58.1 56.2 61.9 61.2 Production 50.0 48.4 52.1 48.7 53.4 53.6 New Orders 49.5 48.0 49.1 49.7 49.9 50.6 Employment 48.5 47.9 50.9 48.2 52.7 50.8 Deliveries 50.0 51.4 49.3 53.1 54.2 55.1 Inventories 46.0 45.4 45.9 47.8 48.4 47.4 Imports 51.0 51.8 50.5 51.9 49.8 56.0 Exports 49.0 48.3 50.3 50.7 51.5 53.2 As of this writing, only the Philly Fed is available among the several monthly factory surveys. It shows a modest rebound in overall activity and new orders, sharply stronger shipments and continued moderation in prices. While the Philly Fed is not the most reliable indicator of NAPM results (or actually factory sector conditions), it has been doing a reasonable job of late and agrees well in its latest results with other data from the sector, with one exception. On that basis, we look for a rebound in the headline, orders and shipments, with prices down again as well. The one worry in the Philly data is that the shipments series swung very sharply when there were no strikes or big orders swings to explain the move. We conclude the Philly shipments data are simply off the mark, and look for a much smaller rise in the NAPM shipments series. The Philly employment series seems to have lagged the NAPM measure by a month, so is no help. NAPM jobs were down sharply in a month in which the payroll survey showed a healthy gain, so we expect NAPM to come up, belatedly, in the November employment series.
November 24, 2000 MCM, Inc. 294 Washington Street, Suite 734, Boston, Massachusetts 617-338-9219
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