Global Business Confidence:
There was a welcome rebound in global business sentiment last week. Confidence remains very fragile and consistent with an economy that is struggling to avoid recession, but last week's survey results were encouraging. Responses improved across the questions posed in the survey except for respondents' broad assessment of current conditions. European businesses enjoyed the biggest improvement, likely because of policymakers' more aggressive response to the region's debt crisis. U.S. respondents were also feeling better, perhaps as a result of the strong gains in the stock market.
FOMC Monetary Policy: 0.0 - 0.25%
The Federal Open Market Committee announced that the Federal Reserve will sell $400 billion in short-term securities over the next year and purchase an equal amount of long-term securities. This is an effort to keep long-term interest rates low and support growth. The FOMC also announced additional support for the mortgage market. The central bank is very concerned about weak growth and the potential for deflation. Three members dissented.
Current Account: -$118.0 bil
The U.S. current account deficit narrowed to $118 billion in the second quarter from an upwardly revised $119.6 billion in the first quarter. The trade gap widened modestly last quarter, but this was more than offset by another increase in net income receipts to a record high. The deficit in net transfer payments rose slightly. As a share of GDP, the current account deficit stood at 3.1%, roughly half the peak hit in 2005. The deficit got as low as 2.4% of GDP in 2009.
Treasury International Capital Flows: +$9.5 bil
Net long-term capital flows to the U.S. rose to $9.5 billion in July after falling to a downwardly revised $3.4 billion in June. The results are well below expectations and may indicate that foreigners are becoming worried about the long-run U.S. fiscal condition. Central banks lessened their purchases of dollar-denominated assets in an attempt to lessen their exposure to further dollar depreciation. However, China and Japan, two of the largest holders of dollar-denominated assets, increased their purchases.
Bloomberg Consumer Comfort Index: -2.8
Consumer sentiment slipped after holding steady in the prior week. According to the Bloomberg consumer confidence index, sentiment dropped by 2.8 points, to -52.1 for the week ending September 18.
Conference Board Leading Indicators: +0.3%
The Conference Board index of leading indicators rose 0.3% in August, beating expectations, after rising 0.6% in July. Four of the 10 components rose this month, with an increase in the money supply once more leading the way. The coincident index was 0.1% higher. The increase in the leading index is consistent with our expectations for a continued recovery in the second half of 2011, although downside risks are rising.
Risk of Recession: +10%
The economy's troubles were increasingly visible in August, and the probability that the U.S. will be in recession in six months jumped, increasing from July's 31% to 41%. The probability of recession has risen for four consecutive months and is at its highest since April 2009. A deteriorating labor market, the plunge in consumer confidence, and a tightening in financial market conditions contributed to the increase in the probability of recession. We are increasingly worried about the economy's near-term prospects, and third quarter real GDP is tracking below our forecast for a 2% annualized gain.
Consumer Price Index: +0.4%
Thwarting expectations of a substantial moderation from July, headline consumer prices once again jumped sharply in August. The 0.4% increase was only slightly below the previous month's elevated reading. Pricing strength was broad-based, with the gasoline, food, shelter and apparel indices all contributing. Core inflation held the previous month's pace at 0.2%. The August data, which suggest inflation is proving more persistent than expected, will give monetary authorities pause.
State Personal Income: +1.1%
Personal income rose 1.1% in the second quarter across states-slower growth than the 2.1% increase in the first quarter of 2011. Real income was up 0.3%. The slower growth in the second quarter is more in line with income growth in the second half of 2010; first quarter income was temporarily boosted by the payroll tax cut.
Industrial Production: 0.2%
Industrial production inched up 0.2% in August after rising 0.9% in July, consistent with slowing growth. Manufacturing output rose 0.4%, supported by a large gain in motor vehicle production and decent gains elsewhere. A 3% drop in utility production held back total factory output. Mining output was once again strong, rising 1.2%.
Jobless Claims: -9,000
Initial claims decreased by 9,000 to 423,000 for the week ending September 17; the prior week's data were revised from 428,000 to 432,000. The modest improvement nonetheless leaves initial unemployment insurance claims uncomfortably close to their recent highs, underscoring weakness in the labor market. Continuing claims fell in the prior week, another small, but encouraging, sign.
Mass Layoffs: 1,587
Mass layoff events and the number of employees affected rose in August, consistent with slow deterioration in the labor market. The economy still appears to be generating positive net job creation, but only just barely. The number of layoffs involving at least 50 workers from a single establishment stood at 1,587, up only slightly from July. However, the number of employees affected by these layoffs rose more significantly to 165,547, the highest since January 2010.
New Residential Construction (C20): -5.8%
Housing remains weak. Homebuilding slid in August, against expectations, dropping to an annualized rate of 571,000 units. This is a loss of 5% from July and a loss of 5.8% from a year earlier. July starts were revised downward slightly. Declines in multifamily construction were larger in August; single-family starts declined 1.4% m/m. Completions declined 2.7% m/m. Permits, however, gained 3.2% m/m.
Existing-Home Sales: +18.6%
Existing-home sales surprised on the upside in August. Seasonally adjusted sales came in at 5.03 million annualized units for a m/m gain of 7.7% and a y/y gain of 18.6%. The current pace of sales is the fastest since early spring but is on par with the 18-month average. Inventories are declining with the rise in sales, and months of inventory have dropped by a full month from 9.5 to 8.5. House prices are down 5.1% y/y, slightly worse than the July performance.
FHFA Purchase-Only House Price Index: -3.3%
The monthly FHFA purchase-only index increased 0.8% from June to July and is down 3.3% from July 2010, better than expected. House price gains were mostly uniform, with all of the census divisions except the South Atlantic division showing gains for July. The portion of the housing market covered by the FHFA monthly indices has benefited in the past several months from relatively few foreclosure sales, but that will change in the coming months, because major banks are now ramping up foreclosure filings.
MBA Mortgage Applications Survey: 0.6%
Mortgage applications rose 0.6% in the week ending September 16, the second straight gain. All of the increase was in the refinance index, which rose 2.2% as homeowners continue to take advantage of record low mortgage rates. Meanwhile, the purchase index fell 4.7%, giving back most of the prior week's gain.
NAHB Housing Market Index: -1
The NAHB Housing Market Index fell 1 point from 15 to 14 in September as expected, with all three component indicators showing slight declines. Regionally, a slight increase in the Midwest index was more than offset by declines in the other three census regions. Homebuilder confidence continues to show weakness as major banks are now starting to ramp up foreclosure filings, leading to increased downward price pressure in the coming months.
Chain Store Sales Snapshot: -1.2%
The ICSC chain store sales index fell 1.2% in the latest week, canceling most of the gains made in the previous week. Sales shifted from discount stores to department stores as cooler weather drove demand for seasonal apparel. Year-over-year growth accelerated to 3.4%, the fastest pace in a month.
Natural Gas Storage Report: +89 bil cubic feet
Working gas in underground storage rose by 89 billion cubic feet during the week ending September 16, falling short of expectations of a 92 bcf build. This report will lead to higher natural gas prices.
Oil Inventories: -7.3 mil barrels
Crude oil inventories decreased by 7.3 million barrels during the week ending September 16, dwarfing the consensus expectation of a 1.3 million barrel decline. Gasoline inventories rose by 3.3 million barrels, surpassing the consensus expectation of a 1.4 million barrel build. Distillate inventories declined by 900,000 barrels, contrasting with expectations of a 1 million barrel build. Refinery utilization unexpectedly rose from 87% to 88.3% as petroleum demand rose. This report will exert upward pressure on oil prices.