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Look forward at April 27 week: The FOMC meeting and advance estimate of 1Q GDP will headline the week

Note: although Friday, May 1 is the first Friday of the month, it is not Employment Friday due to the timing of the survey reference period which ended on Saturday, April 18. The April Employment Situation will be released at 8:30 ET on Friday, May 8.

A look forward at the April 27 week includes the FOMC meeting on Tuesday and Wednesday. It will be focused on getting the economy through the current crisis and the onset of recession. Steps to settle the volatility in the financial sector and ensuring liquidity for businesses have been effective although stresses remain. In spite of dramatically weaker economic conditions, the FOMC won’t be ready to discuss monetary policy stimulus per se. Rather, they will communicate the Fed’s monitoring of developments and preparing for when it is needed after the acute problems associated with COVID-19 pandemic are addressed.

As such, there should be little or no change in interest rate policy. Indeed, there isn’t room to take down short-term rates much. In the meeting statement at 14:00 ET on Wednesday, the FOMC could announce some adjustments of 5 or 10 basis points to signal their continued vigilance and willingness to act. The wording of forward guidance could be tweaked and support for asset purchases is expected to be reinforced. However, when Chair Jerome Powell briefs the press at 14:30 ET, I would anticipate less interest in what the Fed has done that in what other tools it can deploy given that rates are nearly resting at the effective lower bound and asset purchases are already at extraordinary levels.

See the Whetstone Analysis FOMC meeting preview from April 21.

The week also includes the advance estimate of first quarter GDP at 8:30 ET on Wednesday. The abrupt deterioration in economic conditions in March is expected to more than wipe out whatever gains may have been posted in January and February. Early forecasts in a market survey put growth at negative 4.1%, a sharp downturn after the up 2.1% in the fourth quarter 2019. The main story is expected to be the drop in consumer and business spending, and negative contributions from inventories and net exports. A rule of thumb for labeling recessions is two quarters of negative growth. If the first quarter is down and the second quarter 2020 turns in the inevitable contraction, then it makes a recession almost official. (An official recession call comes out of the NBER, and it won’t have the full dataset required for a few months at least.) At this time you would be hard-put to find an economist who doesn’t think a recession is already here. More in question is how long and how severe. The three District Bank Nowcasts for GDP estimates in the first quarter are now squarely behind a decrease in growth. Nowcasts aren’t the best forecast for the actual number, but do provide a rough picture of activity.

The advance estimates of March international trade in goods only and inventories for retailers and wholesalers at 8:30 ET on Tuesday may result in some slight adjustments to forecasts for the Wednesday data, but on the whole expectations are now fairly well set for a negative quarter.

Data on personal income and spending in March at 8:30 ET on Thursday will show the effects of reduced hours and massive job losses that hurt household incomes and caused a sudden cessation of spending on items other than necessities. The PCE deflator for March should follow the lead of other inflation data and reflect the sharp declines in energy costs.

The Employment Cost Index for the first quarter at 8:30 ET on Thursday will include annual revisions as well as a look at the direction of compensation. The first quarter may feel a pinch from the retrenchment in the labor market in March, but it probably won’t affect the numbers nearly as much as it will in the second quarter. Although employers had begun cutting back on hiring late in February and early in March, they were still having to pay competitive wages and benefits to attract and retain workers.

The Conference Board’s Consumer Confidence Index for April at 10:00 ET on Tuesday is expected to slide dramatically from the 120.0 in March. The March index heard the first rumblings of a more worrisome outlook for the economy and a dip in confidence about the labor market. This is anticipated to be much more acute for the April data.

The remaining regional surveys of the manufacturing and service sectors in April are set for release in the week.

The Dallas Fed’s Texas Manufacturing Outlook Survey at 10:30 ET on Monday and the Richmond Fed’s Survey of Manufacturing at 10:00 ET on Tuesday are going to tell much the same tale as those already reported from New York, Philadelphia, and Kansas City – outside of a few essential industries, activity has fallen to a near standstill with plummeting new orders and vastly reduced workforces and workweeks.

Conditions in the service sector have looked even worse in the numbers out of New York, Philadelphia, and Kansas City. The Richmond Fed’s Survey of the Service Sector at 10:00 ET on Tuesday and the Dallas Fed’s Texas Service Sector Outlook at 10:30 ET on Tuesday are not expected to look any better than those from other Districts. Plunging revenues have meant widespread layoffs that have only been alleviated by the SBA’s PPP lending, and that hasn’t been universally available. Businesses are trying to weather the pandemic as best they can by turning to technology and revamping approaches to delivering services. However, the situation is dire and time is running short for many.

The MNI-ISM Chicago Business Barometer for April at 9:45 ET on Thursday will include respondents from both services and manufacturing, neither of which will have much to contribute of a positive nature to the survey. It is possible that the difficulties facing Boeing with large cancellations and few new orders will add deeper level of gloom to the report.

The ISM Manufacturing Index for April is on the calendar for 10:00 ET and is anticipated to be at levels consistent with recession. The ISM says, “A PMI® above 42.8 percent, over a period of time, generally indicates an expansion of the overall economy.” Given the depth of the declines in the regional indexes, an ISM index below that mark would not be a stretch to forecast. At this writing, I would look for a reading around 40.0 in April with some downside risk. The ISM Non-Manufacturing Index for April will not be released until 10:00 ET on Tuesday, May 5.

The NAR’s Pending Home Sales Index for March at 10:00 ET on Wednesday could take a precipitous fall from the near-term peak of 111.5 in February. Consumers avoided the housing market in March as job security was suddenly in question and mortgage credit was much harder to get. Construction spending in March at 10:00 ET on Friday could see a fall in dollar value, but many projects already started and funded continued in spite of social distancing measures and some problems along the supply chain.




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