US Economic Indicators Preview

(weeks of 22 Dec 2008 to 4 Jan 2009)

• Consumer confidence indicators (Dec): declining due to marked falls in employment
• Durable goods orders (Nov): ongoing sharp downward trend
• PCE core deflator (Nov): entering the Fed's comfort zone
• ISM manufacturing index (Dec): again indicating recession in the overall economy

The final GDP figures for Q3 might show a slight downward revision to an annualised -0.6% qoq, as net exports are likely to have contributed somewhat less than initially estimated.

Existing home sales fell by 3.1% mom in October, and they might have declined again - albeit only slightly, due to the massive increase in foreclosures - from 4.98m to 4.95m in November. Pending home sales, which tend to lead existing home sales by 1 to 2 months, decreased in the previous two months, thus indicating that existing home sales' downward trend has continued.

New home sales fell from 0.457m to 0.433m in October, the lowest level since February 1991. We forecast that they will have declined again in November, to 0.415m, not least due to tight credit conditions.

The Conference Board's consumer confidence rebounded from 38.8 to 44.9 in November, supported by significant declines in gasoline prices and the victory of Barrack Obama in the Presidential Election. However, the recovery is likely to have been only temporary, as the situation on the labour market is deteriorating rapidly, adding to the worries about wealth losses and tighter credit standards. We expect consumer confidence to have declined to about 42.0 in December.

In contrast, the University of Michigan's (UMI) preliminary consumer sentiment rose by 3.8 points in December. But only the assessment of present conditions improved, whereas expectations deteriorated further. We expect mounting job losses to have had a stronger impact on consumers than the continued decline in gasoline prices, and thus UMI's final consumer sentiment for December may only reach 57.0, reducing the improvement to 1.7 points.

Personal income is expected to have all but stagnated in November, as aggregate weekly hours declined slightly and average hourly earnings only increased moderately. Personal spending will have fallen significantly by about 1.4% mom, as the deflator will be similarly negative, due to the plunge in gasoline prices in particular. Furthermore, consumer confidence is at very low levels and retail sales plummeted by 1.8% mom. Real personal consumption is likely to fall by an annualised 3.5% qoq in Q4, roughly equalling the drop in Q3. We forecast that the PCE core deflator will have remained unchanged mom in November, just like core CPI. The annual rate will therefore go down to 2.0%, entering the Fed's comfort zone for the first time since September 2007.

We expect durable goods orders, which had dropped by 6.9% mom in October, to have fallen sharply again by 3.5% mom in November. Firstly, the ISM manufacturing's new orders component plunged to a 28-year low of 27.9. In addition, Boeing aircraft orders halved, and the further sharp fall in automobile production indicates that vehicle orders plummeted too. Durable goods orders ex transportation might have decreased by 2.8% mom, after -5.4% mom in October.

The ISM manufacturing index fell further to 36.2, thus signalling recession in the overall economy for the second consecutive month. The first regional manufacturing surveys stabilised at very low levels, and we therefore expect the ISM manufacturing index to have remained more or less unchanged in December.

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