A look forward at the February 24 week closes out the month with what may be a hopeful note for the first quarter 2020 and perhaps confirming that the fourth quarter 2019 maintained its pace of modest expansion due to solid consumer spending.
The data available so far for manufacturing in February suggests that the mild sectoral downturn begun in August 2019 ended in December. The reports for regional manufacturing remaining for February are the Dallas Fed’s Texas Manufacturing Outlook at 10:30 ET on Monday, the Richmond Fed’s Survey of Manufacturing at 10:00 ET on Tuesday, and the Kansas City Fed’s Manufacturing Survey at 11:00 ET on Thursday. If the headline indexes in these reports manage to move above neutral, then in combination with the expansionary readings for New York and Philadelphia, it points to an ISM Manufacturing Index that will hold above the 50-mark for a second month in a row when the report is issued at 10:00 ET on Monday, March 2.
Regional conditions in the service sector in February will be reported in the Philadelphia Fed’s Nonmanufacturing Business Outlook at 8:30 ET on Tuesday, the Richmond Fed’s Survey of the Service Sector at 10:00 ET on Tuesday, the Dallas Fed’s Texas Service Sector Outlook at 10:30 ET on Tuesday, and the Kansas City Fed’s Services Survey at 11:00 ET on Friday. Although the District Bank surveys for services are inconsistent in their correlation to the ISM Non-Manufacturing Index, at the moment these are telling a similar story of middling-to-moderate expansion that is relatively steady in each District. This can be expected to continue into February which in turn suggests that the ISM number is going to hold in the mid-50’s when it is reported on Wednesday, March 4 at 10:00 ET.
Together, data for manufacturing and nonmanufacturing could indicate that in spite of some risks to the outlook like the COVID-19 that is affecting economic conditions in China and a few other isolated areas, activity in the US may show little impact as yet.
Measures of consumer confidence continue to focus on domestic conditions with a strong labor market and low inflation. Consumers are basically tuning out the geopolitical noise and focusing on the positives. The Conference Board’s Consumer Confidence Index for February at 10:00 ET on Tuesday should remain near the preliminary 131.6 in January that was the highest since the summer months of 2019 before concerns about a possible recession set in. Consumers have shaken off those worries in the face of the hard evidence that jobs are plentiful and incomes are persistently on the rise, if modestly. The preliminary February University of Michigan Consumer Sentiment Index climbed to 100.9 in February, the second highest since the end of the recession. It is not out of the question that it will see a little upward revision, most likely in the current conditions component. After a certain point high consumer confidence does not mean that consumer will up their spending, but it does suggest that they won’t cut back, either. It also means they are more likely to purchase big-ticket items like cars and invest in housing and household items related to home purchase and upgrades.
The numbers for sales of new single-family homes in January at 10:00 ET are expected to reflect good demand for new residential construction and a willingness to contract for homes not yet under construction or currently underway. Units that have been completed are also going to move fairly quickly although supplies may be limited due to demand that was strong for incomplete homes in previous months. Short supplies may be pushing up some prices in a competitive market. Low mortgage rates may mean that some homebuyers are able to purchase units in higher price ranges. Short supplies of existing units may also mean that new construction gets a bigger share of sales.
The FHFA House Price Index for January at 9:00 ET on Tuesday lags other data on home prices but it should confirm if the recent modest upward pressure for prices has started to reflect limited supplies of home or if homebuyers are still cautious about home affordability and driving hard bargains on prices.
The NAR’s Pending Home Sales Index for January at 10:00 ET on Thursday should pick up the pace from the softer reading in December. However, limited supplies of available units for sale could restrain the number of contracts signed in spite of attractive mortgage rates that bring potential homebuyers into the market.
New orders for durable goods in January at 8:30 ET on Thursday will see weakness in the transportation component with the sad state of aircraft orders. Boeing received no new orders in January. However, that was only a small decline from a meager 3 orders in December, so the overall decline may not be quite so dramatic as the lack of orders for the month might imply. Elsewhere there may be signs that orders for other types of hard goods have improved.
Increases in personal income and spending for January at 8:30 ET on Friday should have a few positives for incomes. There were mandated increases for minimum wages in some localities and states that should boost wages and salaries, and the annual COLA increase for social security benefits of 1.6% should add a bit to payouts there. Consumption expenditures in durables and services should be up for January, but a steep decline in gasoline prices will depress spending for nondurables. The PCE deflator for January may start to pull away from the soft year-over-year increases that have felt some special factors that were evident at this time last year.
The second estimate of fourth quarter GDP at 8:30 ET on Thursday is anticipated to remain about in line with the readings for the rest of the year with growth adhering to around 2%, not much revised from the 2.1% in the advance estimate.. Personal consumption expenditures have been the mainstay of recent expansion and is expected to be a big positive for the fourth quarter. Net exports may also make a positive contribution while the change in private inventories will likely provide little or no support to growth.
One of the first pieces of the puzzle for growth in the first quarter 2020 will be in the advance data for international trade in goods in January at 8:30 ET on Friday. The report will include the advance data on inventories in retail and wholesale.
Initial jobless claims for the week ended February 22 at 8:30 ET on Thursday will probably hold close to the 210,000 in the prior week. Some of the noise from weather and holidays will have settled out and the number should be steadier. Claims levels remain consistent with a tight labor market as evidenced by the insured rate of unemployment which has hardly changed over a long string of 1.2% readings begun in May 2018.
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