US Economic Indicators Preview

(Week of 18 to 24 January 2010)

• Housing starts (Dec): only up slightly
• Philadelphia Fed index (Jan): down somewhat after two consecutive improvements
• Leading indicators (Dec): ninth increase in a row

The NAHB index, which had risen from its low of 6 in January 2009 to 18 by September, declined again slightly to 16 in December. This was due to falling expectations for sales of single-family homes. We predict that the NAHB index will have remained unchanged in January.

The disappointing performance of the NAHB index suggests that the recovery in housing starts slowed down at the end of the year. In November, housing starts increased markedly by 8.9% mom, but this did not fully compensate for the October decline. However, single- family starts showed a positive yoy growth rate for the first time since March 2006. We forecast that housing starts will have risen slightly to 585k in December. Building permits, which were somewhat higher than housing starts in November, could have remained stable.

Producer prices (PPI) jumped up 1.8% mom in November, due to a spike in energy prices. However, given the decline in gasoline and oil prices in particular, we predict that producer prices will have fallen by 0.2% mom in December, although food prices are expected to have gone up. PPI's annual rate could nevertheless have soared from 2.4% to 4.3%, because the favourable base effects from energy prices have evaporated. Due to ongoing slack in the economy, we expect core producer prices to have risen by a mere 0.1% mom, which would lower the annual rate to about 1%.

Just like the national ISM index, December's Philadephia Fed index initially improved from 16.7 to 20.4, and was even revised up to 22.5 because of new seasonal adjustment factors. This contrasted sharply with the New York Fed index, which plummeted to a mere 4.5 in the last month of 2009. However, last week, the New York Empire was reported to have increased to 15.9 in January. We expect the gap between the two indices to have narrowed; the Philadelphia Fed index could thus have fallen to about 17 in January, particularly as the Fed reported that conditions for manufacturing in the Philadelphia region were mixed, contrary to many other regions, where they had improved.

After having risen by 11k to 444k the previous week, initial jobless claims could have fallen to 440k in the week ending 16 January, about the last 4-week moving average. Jobless claims are currently at their lowest level since August 2008, before the financial crisis escalated.

Leading indicators went up sharply by 0.9% mom in November - the eighth consecutive increase. We expect leading indicators to have risen markedly again in December, by about 0.7% mom. The steeper yield curve will have been the main contributor to the rise, followed by the drop in jobless claims. Stock prices, consumer expectations and supplier deliveries will also have had a significantly positive impact. The annual rate is likely to have improved further to 6.8%, which would be the highest since summer 2004.

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