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Look Forward: Week of January 14, 2019

The partial federal government shutdown that went into effect December 22 is ongoing. At present economic data out of the Bureau of Labor Statistics and Federal Reserve are unaffected, but numbers from the Census Bureau are on hiatus. Reports that have been delayed so far are:

• Sales of new single-family homes for November (was Thursday, December 27 at 10:00 ET)
• Advance international trade, retail inventories, wholesale inventories for November (was Friday, December 28 at 8:30 ET)
• Construction spending for November (was Thursday, January 3 at 10:00 ET)
• Factory orders for November (was 10:00 ET on Monday, January 7).
• International trade in goods and services for November (was 8:30 ET on Tuesday, January 8).
• Wholesale trade for November (was 10:00 ET on Thursday, January 10).

The backlog of reports is at the stage where it has implications for delays of more critical data. The January 14 week would have included the December reports for retail and foods sales on Wednesday at 8:30 ET, business inventories for November at 10:00 ET on Wednesday, and housing starts and permits issued at 8:30 ET on Thursday. All are needed to help shape the outlook for growth in the fourth quarter.

The data that will be released will provide a look at conditions for manufacturing, housing, and consumer sentiment early in January, as well as finishing off a few sectors for December.

The New York Fed’s Empire State Survey for January is at 8:30 ET on Tuesday, and the Philadelphia Fed’s Manufacturing Business Outlook for January is at 8:30 ET on Thursday. Both District Bank surveys showed a drop in sentiment for the factory sector in December, along with the Richmond, Dallas, and Kansas City reports. There is a lot of uncertainty around conditions in the manufacturing sector related to trade and tariffs and now the government shutdown. It is probable 2019 will be off to a slow start for activity and it could take a few months to establish just how much the pace of expansion has suffered.

The New York Fed’s Business Leaders Survey for January is at 8:30 ET on Thursday. It is the earliest of the surveys for the service sector. Non-manufacturing activity was slower in December, but not as much as manufacturing.

The data on industrial production and capacity utilization for December at 9:15 ET on Friday is anticipated to feel the impact of the slowdown in manufacturing, with mild weather keeping utilities output down and low oil prices discouraging extraction in the mining sector.

The preliminary University of Michigan Consumer Sentiment Index for January is at 10:00 ET on Friday. Sentiment has remained elevated in recent months. However, it would not be a surprise to see a sharp downturn in early January from the 98.3 in December. In particular, despite the still tight labor market and moderation in gasoline prices, the government shutdown will probably cut into confidence in current conditions and erode six-month expectations.

The NAHB/Wells Fargo Housing Market Index for January at 10:00 ET on Wednesday will probably not offer much prospect of a rebound for residential housing sales. Recent weeks have seen a decline in mortgage interest rates (4.51% in January 3 week, 4.45% in January 10 week after average Freddie Mac 30-year rate of 4.64% in December) that may coax a few homebuyers into the market. Hopefully the index has reached a near-term low at 56 in December. However, the hectic market of the past two years appears to have returned to a more cautious outlook.

The Fed will release the next issue of the Beige Book at 14:00 ET on Wednesday. The report will be compiled from data through the first days of January. It is not likely that there will be much evidence of the impact from the government shutdown, but there may be some downgrades in activity based on the abrupt slowing in manufacturing activity. Nonetheless, the overall tone should be for at least modest growth across the 12 Districts. The labor market should generally remain on a moderate pace of expansion, wages up moderately as well, and prices showing modest upward pressure.

Numbers for initial jobless claims could be volatile for the next few weeks. This is the time of year when businesses lay off workers hired for the holiday season. However, there may also be layoffs related to the government shutdown. Government workers are still officially employed – if unpaid – but jobs dependent on government contracts may suffer temporary layoffs until funding is restored.

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