US Economic Indicators Preview

(Week of 5 to 11 May 2008)

• ISM non-manufacturing index is likely to have fallen in April
• Trade deficit could have remained on a higher level in March, partly due to higher import prices

The ISM non-manufacturing index plummeted to 44.6 at the beginning of the year, but recovered to 49.6 in March. However, given restrictive seasonal adjustment factors, the sharp deterioration in consumer confidence and the fact that the housing market correction has spread to other sectors, we forecast that the ISM nonmanufacturing index will have declined to about 48.5 in April, indicating that the contraction in the US economy has intensified.

Nonfarm business gross value added went up by 0.4% qoq only in the first quarter, and aggregate working hours declined according to the labour market report. We thus expect non-farm productivity to have risen by an annualised 1.5% qoq in Q1 (3.0% yoy). Unit labour costs could have risen by 2.6% qoq, but the annual rate would nevertheless decline from 0.9 to 0.3%.

Pending home sales fell by 1.9% mom in February - a new cyclical low and 33% below the peak in April 2005. Partly due to the increase in foreclosures, we expect pending home sales to have continued declining in March, by about 1.0% mom.

As sales dropped, wholesale inventories went up sharply by 1.1% mom in February. Although higher oil prices may have played a part, we expect growth in wholesale inventories to have slowed to about 0.5% mom in March.

As expected, initial jobless claims bounced back in the week ending 26 April, from 345k to 380k. We expect them to have remained on this elevated level in the week ending 3 May, in line with the deterioration in consumers' labour market assessment.

The US trade deficit widened unexpectedly by more than $3bn to -$62.3bn in February, although exports expanded sharply by 2.0% mom. But imports went up even more, by 3.1% mom, particularly due to a surge in natural gas and automobile imports. The latter was a surprise, given the slowdown in consumption. As domestic demand has declined, we expect imports to have risen less markedly than exports in real terms in March. But due to the increase in import prices by 2.8% mom, nominal imports are likely to have risen noticeably again. We thus expect the trade deficit to have remained on the high February level.

BHF-BANK
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