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Look Forward: February 11 week includes more backlog, but will Congress pass a funding bill?

Note: for changes to the data release calendar related to the partial government shutdown, please see the “On the radar” from February 10.

With the February 15 deadline for funding large parts of the federal government nearing, Congress has yet to pass a bill that will avert another partial shutdown. The prior 35-day impasse was unthinkable before it occurred. It is only to be hoped that the political consequences of allowing another one so soon after will prevent a repeat. Every day that passes without an agreement will add to uncertainties and volatility in financial markets.

It light of this, Fed policymakers’ comments in the coming week will have to work hard at soothing fears of a recession. They will have to address the fine balance between present moderate growth and the risks to the outlook. I would certainly anticipate a lot of repetition of the mantra of “patience” and “data dependence” in guiding monetary policy against a more uncertain forecast horizon while emphasizing that policy is not on a present course either to the up- or downside.

Cleveland Fed President Loretta Mester (alternate to Chicago vote in 2019, moderate hawk) speaks on Tuesday at 18:30 ET and 8:50 ET on Wednesday.  In both instances her topic is the economy and monetary policy outlook. Atlanta Fed President Raphael Bostic (nonvoter in 2019, moderate) will speak at 7:15 ET on Wednesday at a monetary and economic policy conference in Dublin, Ireland and at 9:55 ET at a workforce development conference in Birmingham, AL on Friday.

It would be a huge surprise if either of them spoke outside the present FOMC consensus as expressed by the January 30 FOMC statement. This is especially true given that Chair Jerome Powell’s semiannual monetary policy testimony is now on the calendar for Tuesday, February 26 (Senate Banking Committee) and Wednesday, February 27 (House Financial Services Committee). Policymakers are careful not to introduce possible controversy in advance of the Fed’s twice-yearly Monetary Policy Report to the Congress. In any case, there seems to be unity among Fed officials regarding holding on monetary policy until present risks have abated.

The numbers on Retail Trade and Food Services for December at 8:30 ET on Thursday is for December and anxiously awaited after the shutdown delay. It will be the last retail report for the fourth quarter 2018 and will show if the final month was a solid one for the holiday season after the up 0.2% in November and up 1.1% in October.

Later in the morning at 10:00 ET there will be the full business inventories report for November. The advance report for December will be released at 10:00 ET on Wednesday, February 27, day before the initial data on fourth quarter GDP will be released. It is not clear how much of a contribution the change in inventories will make for growth in the fourth quarters.

Data on inflation in January will be from the Consumer Price Index (CPI) at 8:30 ET on Wednesday, the Final Demand Producer Price Index (PPI) at 8:30 ET on Thursday, and the Import Price Index (IPI) at 8:30 ET on Friday. The CPI will include updated seasonal adjustment released on Monday, February 11 and the PPI will include updated seasonal adjustment released on Tuesday, February 12. The IPI is an unadjusted index and not revised. Revisions rarely do more create minor changes in the month-to-month percent changes and the overall picture remains much the same. For January, the flattening in energy prices should mean a return to less volatility in the component and a better sense where there has been pass-through from commodities prices in both the CPI and PPI.

The Atlanta Fed’s Business Inflation Expectations Index for February at 10:00 ET on Wednesday will probably hold near the 2.0% reading of January that was an abrupt slowing from the 2.4% in December.  Surveys of the manufacturing and service sectors suggest that broad price declines are leveling off related to energy, but also with less upward pressure on other commodities.

Consumer inflation expectations in the preliminary University of Michigan Consumer Sentiment Index for February at 10:00 ET on Friday will likely remain about the same as in recent months due to stable fuel costs. On the other hand, the index may well reflect continued impact from the government shutdown. The final January index fell 7.1 points to 91.2 from 98.3 in December. The fact that the shutdown ended will help, but that another shutdown may not be avoided could keep the index from recovering.

The NFIB Small Business Optimism Index for January is also expected to be a victim of the shutdown. Most small businesses that are government contractors or sub-contractors will expect to regain lost business, but most will also have suffered from not being able to work during that time. Overall small business confidence is likely to remain elevated, just not at levels seen in 2018. Expansion and growth remain in place and business conditions are broadly healthy with demand for a skilled workforce.

The first of the monthly District Bank surveys for manufacturing is the New York Fed’s Empire State Survey at 8:30 ET on Friday. February is typically a softer month for the District’s manufacturers due to winter weather. That may be the case this year as well with an unusually cold start to the month on top of some recent downward momentum.

The Fed’s report on industrial production and capacity utilization for January at 9:15 on Friday could be a mixed bag. After a strong December for manufacturing and mining, and a drop in utilities output, the situation could be reversed. Motor vehicle production could drop off as sales decline and mining slips along with demand for crude while prices are low. Conversely, a very cold month will see the need for heating jump after a relatively warm December.

The report on Job Openings and Labor Turnover (JOLTS) at 10:00 ET on Tuesday is for December. While the level of jobs open and the pace of hiring may be off somewhat from the hectic pace of earlier in 2018, levels are still expected to be consistent with a tight labor market. The number of job separations should remain relatively low overall, with voluntary job leavers still active.

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