Photo: Horia Varlan via flickr
A good preview of some upcoming macro releases courtesy of Deutsche Bank:Since the Fed has conditioned QE2 to economic developments, emerging economic trends could have significant ramifications for monetary policy expectations. As such, there are several important data releases in the coming week, including industrial activity, consumption, housing, employment and inflation. The October retail sales report initially looks to be the most important new information, but any surprises from either the CPI or regional production surveys could also significantly impact the tone of the economic news. Initial jobless claims correspond to the November employment survey period. Lastly, Chairman Bernanke speaks at an ECB conference on Friday.
We are focused on retail sales, because our above-consensus GDP forecast over the next several quarters critically depends on an accelerating pace of consumer spending. Given our assumption that the household savings rate is stabilizing and the labour market recovery is accelerating, we project a significant acceleration in consumer spending over the coming quarters. The sequential quarterly annualized changes over the past four quarters were 0.9%, 1.9%, 2.2% and 2.6%. We project 3.0% in the current quarter and 3.3% for 2011. The surprising strength in November unit motor vehicle sales (12.3M vs. consensus expectations of 11.8M) bodes positively for Monday’s retail sales report. (We project a 0.8% increase overall and a 0.5% increase excluding auto sales.) The retail data are additionally important because the composition and level of sales could also shed insight on the outlook for the holiday shopping season.
On Tuesday, we expect October industrial production to post a modest gain (+0.4% vs. -0.2%) based on what we already know about aggregate hours worked from the employment report. The mild drop in September was the first sequential decline in 15 months and was not particularly surprising given the air pocket in several production surveys in the prior months, including the ISM and various regional surveys. However, industrial output appears to be regaining traction of late. The latest jobs report showed a lengthening of the manufacturing workweek, and several key production surveys showed marked improvement in October. Furthermore, the fact that a significant recovery in new orders was a recurring hallmark of the respective headline rebounds last month suggests the production surveys should continue to rise in November. As such, we will note the trend in the NY Fed’s Empire survey on Monday and the Philly Fed index on Thursday.
While we believe more attention should be focused on the concurrent indicators of activity, given policymakers’ concerns over low inflation, the PPI (Tuesday) and CPI (Wednesday) will also merit attention. We project tame increases at the core level, while food and energy prices are likely to push the headline readings up more quickly. Our headline/core forecasts are as follows: PPI (+1.0%/+0.2%) and CPI (+0.3%/+0.1%). We are not concerned about further disinflation turning into outright deflation, because we believe the economy is currently passing through an inflection point following which inflation will gradually begin to trend higher as economic momentum builds. In turn, policymakers will become less worried over the low level of consumer inflation sometime in 2011.