Economic First Look: The Consumer Takes the Spotlight

 | Feb 25, 2012 | 8:30 AM EST
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Pending Home Sales, 10:00 a.m. (All times Eastern)
Dallas Fed Manufacturing Survey, 10:30 a.m.

Durable Goods Orders, 8:30 a.m.
S&P Case-Shiller Home Price Index, 9:00 a.m.
Consumer Confidence (Conference Board measure), 10:00 a.m.
Richmond Fed Manufacturing Index, 10:00 a.m.
Sandra Pianalto, president of the Cleveland Fed (voter), speaks, 7:15 p.m.

GDP (second estimate for the fourth quarter), 8:30 a.m.
Richard Fisher, president of the Dallas Fed (non-voter), speaks, 9:30 a.m.
Chicago PMI, 9:45 a.m.
Ben Bernanke speaks, 10:00 a.m.
EIA Petroleum Status Report, 10:30 a.m.
Charles Plosser, president of the Philadelphia Fed (non-voter), speaks, 12:00 p.m.
Beige Book, 2:00 p.m.

Motor vehicle sales, released by each automaker with a media tally at the end of day
Chain store sales, released by each retailer with a media tally in the morning
Sandra Pianalto, president of the Cleveland Fed (voter), speaks, 8:00 a.m.
Jobless claims, 8:30 a.m.
Personal Income and Outlays, 8:30 a.m.
ISM Manufacturing Index, 10:00 a.m.
Construction Spending, 10:00 a.m.

James Bullard, president of the St. Louis Fed (non-voter), speaks, 8:00 p.m.

Even though non-farm payrolls are typically released on the first Friday of every month, this month they are released March 9, as February is a short month and the first Friday falls early this month. So, you will have to wait another week for that data. In the meantime, there are quite a bit of other data on tap. We have a number of Fed speakers -- including Fed Chairman Ben Bernanke's semiannual testimony to Congress on Wednesday -- along with the anecdotal reports the Fed compiles in its Beige Book.

We have several data sets on manufacturing and also on the consumer. These include two of my personal favorites, Durable Goods Orders (covering manufacturing) and Personal Income and Outlays (covering the consumer). And the ISM Manufacturing report on Thursday has the potential to move markets. There's also the second revision for the latest estimate (the preliminary read) on GDP for the fourth quarter, which includes more complete information, like that on international trade, for instance, that wasn't available in the first (advance) estimate for GDP. Watch for changes between these two estimates -- and the third (final) revision will come on March 29.

For manufacturing, I continue my bullish thesis, though I do acknowledge there are some caveats. First, some manufacturing activity of late has been due to an inventory build, which by definition does not last forever. Second, while manufacturing exports have held up rather well -- the International Trade report shows that exports of goods were up $202.4 billion in 2011 year over year to reach $1.498 trillion -- I am not so sure Europe's recession will allow exports to continue to increase at that pace. They may, but they might not. The EU is our second-largest goods export market (after Canada), and we export 2½ times as much in goods to the EU as we do to China.

Meanwhile, regional Fed manufacturing measures have been fairly upbeat. The February Empire State Manufacturing Survey indicates that manufacturing activity in New York State expanded for a third consecutive month. The general business conditions index rose 6 points to 19.5, its highest level in more than a year. The new orders index, at 9.7, was positive but down slightly. The Philadelphia Fed reported in its own manufacturing survey that the measure of current activity edged higher from a reading of 7.3 in January to 10.2, its highest level since October. The new orders index was positive for the fifth consecutive month and increased from 6.9 to 11.7.

So, for this week's indicators, the caveats I mentioned may show through, but if the Fed surveys are a guide, we may see more positives than negatives. However, I'd like to direct your focus to the "New Orders" component of the ISM data, which is where we'd see some of the first signs of any weakness. Also, look at the "non-defense capital goods excluding aircraft" component of the Durable Goods Orders report. This is the capex segment of the report, and is a good indicator of whether companies are expanding their production capabilities. If we see further investment here, companies are more optimistic about future sales -- though note that any investment in labor-saving technology might not be all that helpful from an employment perspective.

Switching gears to the consumer, we have auto sales and chain-store sales that are quite timely, with data as of February. Note, however, that for chain-store sales, Wal-Mart (WMT) does not report with other retailers, and for the time being, J.C. Penney (JCP) has stopped reporting while it undergoes a pricing revamp. And remember that many retail sales are not made at chain stores, but instead at mom-and-pop retailers that aren't part of the chains that report Thursday.

Those smaller retailers are part of the Personal Income and Outlays report, which measures consumers' incomes (from all sources) and their spending habits. The data in this week's report are as of January. I'm not expecting much in the way of real wage growth; the Bureau of Labor Statistics has already reported that real weekly wages were flat in January and are down 0.9% from their peak in October 2010. What remains to be seen in this report is whether income from other sources (rents, dividends, business income, transfer payments, etc.) increased or decreased. An increase in transfer payments is not necessarily a good thing, by the way, as it indicates more people are relying on government disability, unemployment or welfare benefits, along with Social Security.

Until and unless income from all of these sources grows faster than inflation, I have difficulty discerning how spending can grow consistently. The savings rate (also found in this report) was a rather low 4.0% in December, though it did increase from 3.5% in November. Consumers have a remarkable knack for confounding forecasters, but if last month's Retail Sales report coupled with the consumer price index is any guide (and noting that this week's report on consumer spending includes much more than just retail sales) we may see an uptick in consumer spending. Retail Sales advanced 0.4% in January in nominal terms, while headline inflation as measured by the CPI increased by 0.2%, netting a slight advance in real terms. Of course, the Personal Incomes and Outlays report includes its own measure of inflation tied to the personal consumption expenditures (PCE) measure in the report -- which, by the way, is the Fed's preferred inflation gauge, not the CPI.

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