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Look Forward to January 28, 2019 week with the FOMC meeting and Employment Situation for January

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 remain 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)
  • Retail and food sales for December (was 8:30 ET on Wednesday, January 16)
  • Business inventories for November (was 10:00 ET on Wednesday, January 16)
  • Housing starts and building permits issued for December (was 8:30 ET on Thursday, January 17)
  • Advance report on orders for durable goods in December (was 8:30 ET on Friday, January 25)
  • Sales of new single-family homes in December (was 10:00 ET on Friday, January 25)

The backlog of reports continues to grow. In the January 28 week, the list will expand with:

  • Advance report on international trade in goods, retail inventories, and wholesale inventories for December at 8:30 ET on Tuesday, January 29
  • Advance estimate for fourth quarter GDP at 8:30 ET on Wednesday, January 30
  • Personal income and spending for December at 8:30 ET on Thursday, January 31

If and when the proposed legislation to fund the government until February 15 passes both House and Senate — President Trump has indicated he will sign it — it will take time for the previously delayed reports to be prepared, much less the ones on the immediate schedule. The Census Bureau and Bureau of Economic Analysis should announce at least a partial new schedule early next week. In practice, it may prove simpler just to skip the missed report and move on to the previously announced date for the next.

The communications blackout period around the January 29-30 FOMC meeting is in effect through midnight on Thursday, January 31. Fed policymakers will be out of the public eye and ear during that period, with the exclusion of the Chair’s press briefing on Wednesday, January 30 at 14:30 ET. This briefing is the first of what will become routine after every scheduled FOMC meeting eight times a year. The meeting is expected to result in no change in monetary policy for now but a heightened assessment of risks to the downside for the US economy.

See the Whetstone Analysis “On the radar” from January 23 for a preview of upcoming FOMC meeting.

The end of the communications blackout period will fall on the same day as the release of the January Employment Situation at 8:30 ET on Friday. It could make an interesting juxtaposition depending on the tone of the employment data.  Surveys of activity in the manufacturing and service sectors do not point to any particular slowing in hiring in January, so it is probable that the level of payroll gains will remain healthy for the month, although significantly lower than the whopping 312,000 in December. The report will also include annual revisions to the Establishment Survey, so pinning down a forecast could be difficult. However, the underlying story of continued strength in the labor market should not be changed. After annual revisions in December, the Household Survey put the unemployment rate at 3.9% as the labor force gained in new entrants, re-entrants, and voluntary job leavers. All of this suggests workers view the labor market as favorable for finding jobs.

Prior to the release of the government employment report, the ADP National Employment Report for January will be released at 8:15 ET on Wednesday. Although it was a miss to the downside, last month the 271,000 gain was consistent with a burst of hiring for the private sector. The BLS change in private payrolls does not usually match up with the ADP number, but it does generally move in the same direction.

The Challenger report on layoff and hiring intentions in January at 7:30 ET on Thursday is expected to reflect low levels of announced intentions to cut jobs after the year-end adjustment in November and December and mild hiring plans for January in light of economic uncertainties. There is often an upswing in announced hiring for retail in January or February as do-it-yourself centers prepare for the spring when consumers start to attend to gardens and the outside of homes. However, consumers are reporting less confidence in January and tax refunds may be delayed during the partial government shutdown which in turn means putting off hiring plans until it is clearer that shoppers will be out in force.

Fed officials won’t have the data on the PCE deflator to evaluate for price stability, but they will get the fourth quarter Employment Cost Index at 8:30 ET on Thursday. Businesses have widely reported upward pressure on wages and salaries, and on increases in provision of non-wage benefits. It is possible that the index will turn it it’s strongest reading since the early months of the recession back in 2008. So far there is little evidence that increases in total compensation is seeping into overall inflation. However, policymakers are going to find reason to become more watchful that this does not become the case.

The Dallas Fed’s Texas Manufacturing Outlook for January at 10:30 ET is the last of the District Bank surveys for the factory sector set for release before the ISM Manufacturing Index at 10:00 ET on Friday. So far, the headlines from the New York, Philadelphia, Richmond, and Kansas City Feds have presented a mixed picture. On net, it looks like the factory sector activity is down-to-flat at the start of the year. In addition to the longer-term concerns about trade and tariffs and the impact on costs and the supply chain, the (hopefully) short-term impact of the partial government shutdown is causing delays in orders and production.

Service sector conditions were generally softer for January in the surveys from the Richmond, New York and Philadelphia Feds. The Dallas Fed’s Texas Service Sector Outlook at 10:30 ET on Tuesday could well join the others with a downbeat tone. The Dallas general business conditions index already turned lower to -5.0 in December after 11.4 in November. Services were broadly faring better than manufacturing as less directly affected by tariff uncertainties. However, the partial government shutdown has had an immediate impact on pay for existing contracts and delayed inking further agreements with the government.

The MNI-Chicago Purchasing Managers Business Barometer for January at 9:45 ET on Thursday includes a mix of respondents from both the service and factory sectors. As such, it can display unexpected volatility. January could see a sharp downturn after two months of robust readings of 65.4 in December and 66.4 in November.

The week will close out the monthly data for the major indexes of consumer confidence. The Conference Board’s Consumer Confidence Index for January at 10:00 ET on Tuesday may decline for a fourth month in a row. The 128.1 in December was a fairly steep drop from the 136.4 in November and was mainly due to a fall in six-month expectations. In the interim, it is unlikely these have strengthened due to the political impasse about funding the government, and this should impact the present situation as well.

The preliminary University of Michigan Consumer Sentiment Index fell nearly 8 points to 90.7 in January after 98.3 in December. When the final reading is released on Friday at 10:00 it is not expected to see an upward revision. In fact, the lengthening government shutdown may well mean it is even lower.

Nonetheless, neither index is likely to reflect weak confidence, just less ebullience.

The S&P CoreLogic Case-Shiller Home Price Index for November at 9:00 ET on Tuesday should follow the lead of the FHFA House Price Index released on January 23. Month-over-month increases in prices should remain modest and the year-over-year pace down somewhat, but still healthy.

The NAR’s Pending Home Sales Index for December at 10:00 ET on Wednesday is not expected to signal any particular pickup in the pace of home sales. The decline in mortgage interest rates may encourage some homebuying, but it will still be off the more hectic pace in the first half of 2018.


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