US Economic Indicators Preview

(Week of 8 to 14 February 2010)

• Trade deficit (Dec): slightly wider, but only in nominal terms
• Retail sales (Jan): up after drop in December
• UMI consumer sentiment (Feb): down somewhat after soaring in January

According to the first GDP estimate for Q4, inventories contributed 3.4 percentage points to the 5.7% increase in GDP in annualised terms. The Department of Commerce nevertheless assumed that wholesale, retail and factory inventories will have decreased in December. Thus wholesale inventories, which had risen by more than 2% in the previous two months, could have declined by about 0.4% mom. We already know that factory inventories went down by 0.2%; after two consecutive increases, total business inventories could also have shrunk by 0.2% mom in December.

The nominal trade deficit widened from $33.2bn to $36.4bn in November, as imports increased more than exports. The Department of Commerce is assuming that this will also have been the case in December, and we thus forecast that the trade deficit will have risen slightly to $37.0bn in December. However, given net exports' positive growth contribution of 0.5 percentage points in the GDP estimate, the real trade deficit is likely to have fallen in the last month of the year.

The Congressional Budget Office estimates that the budget deficit was $46bn in January, $17.5bn less than a year ago. Revenues were lower than last year, but outlays decreased even more. However, if shifts in the timing of certain payments were taken into account, the deficit would be $33bn higher than in January 2009.

After having increased by a total of 3% in October and November, retail sales dropped by 0.3% mom in December, as car sales fell slightly despite industry reports of another rise. However, in January, the announced drop in domestic vehicle sales could actually translate into higher car sales in the retail sales report because of a much more favourable seasonal adjustment component. The increase in gasoline prices could have lifted nominal retail sales noticeably too. Moreover, employment in the retail sector rose significantly, which also suggests an increase in sales. We expect retail sales to have gone up by at least 0.5% mom in December.

The University of Michigan's (UMI) consumer sentiment rose in January from 72.5 to 74.4. This was its highest level in two years, as expectations and the current assessment in particular improved. However, after rising sharply in the first half of 2009, the pace of improvement in sentiment has slowed down again due to modest income and job prospects. According to UMI, real personal spending will only rise by about 1.8% in 2010 - the slowest exit from a recession in consumer spending since 1945. Given the ongoing decline in the weekly ABC consumer comfort poll and the rise in gasoline prices, we predict that UMI's consumer sentiment will have fallen to about 74.0 in February.

Initial jobless claims rose unexpectedly by 8k to 480k in the week ending 30 January, and the 4-week moving average went up to 468.8k. The rise could still be due to the holiday-related backlog in filing initial claims, and is thus not necessarily a sign that labour market conditions are deteriorating again. We therefore predict that jobless claims in the week ending 6 February will have fallen to about 460k.

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