- U.S. retail sales expected to be weak and provide some new data on whether U.S. consumers will continue to single-handedly hold up the U.S. economy
- PPI expected to rise and add to the recent uptick in the inflation data
- NAHB housing index expected to improve slightly
- Business inventories expected unchanged
- FOMC expected to leave policy unchanged
- EIA report expected to show another increase in U.S. crude oil inventories
U.S. retail sales expected to be weak and provide some new data on whether U.S. consumers will continue to single-handedly hold up the U.S. economy — The market is expecting today’s Feb retail sales report to be weak and show a decline of -0.2% for both the headline and the ex-autos report. That would follow the paltry gains of +0.2% and +0.1% ex-autos seen in January. Feb retail sales are expected to be a little better at +0.2% after excluding autos and gasoline (which removes the downward pressure on gasoline dollar sales from low gasoline prices). Still, today’s expected Feb retail sales ex-autos and ex-gasoline report of +0.2% would be down from the Jan report of +0.4%.
Today’s retail sales report has the potential to move the markets since U.S. consumers at present are single-handedly holding up the economy, getting no help from business investment, government spending, net exports, or inventories. If today’s retail sales report is weaker than expected, then there will be fresh speculation about whether U.S. consumers are running out of gas and whether there may yet be a recession by year-end.
PPI expected to rise and add to the recent uptick in the inflation data — The markets are expecting today’s Feb final-demand PPI to rise to +0.1% y/y from Jan’s -0.2% y/y and for the Fed core PPI to rise to +1.2% y/y from Jan’s +0.6% y/y. Today’s PPI report will be the first U.S. inflation data for February. The markets are carefully watching the inflation situation after the recent uptick in U.S. inflation statistics. The Jan CPI rose to a 1-1/3 year high of +1.4% y/y and the Jan core CPI rose to a 3-3/4 year high of +2.2% y/y. The Jan PCE deflator, the Fed’s preferred inflation measure, rose to a 1-1/3 year high of +1.3% y/y and the Jan core PCE deflator rose to a 3-1/4 year high of 1.7% y/y.
The latest core PCE deflator rate of +1.7% is still below the Fed’s +2.0% inflation target, but it has risen fairly quickly from the 4-3/4 year of +1.3% seen during most of 2015, illustrating some upside inflation pressures. If those pressures continue, the Fed will be under pressure to implement its next rate hike sooner rather than later.
NAHB housing index expected to improve slightly — The market is expecting today’s March NAHB housing market index to show a small +1 point increase to 59, recovering a bit after the -3 point decline to 58 seen in February. The housing market index from the National Association of Home Builders posted a record high of 65 in Oct 2015 but has since settled back and posted a 9-month low of 58 in February. U.S. home builder confidence is still relatively strong due to strong home sales, rising home prices, and a relatively tight supply of homes. However, confidence has tapered off a bit in the past couple of months as seen by the fact that U.S. housing starts fell by a total of -6.6% in Dec-Jan to 1.099 million units and are down from the 8-1/4 year high of 1.211 million units posted in June 2015.
Business inventories expected unchanged — The market is expecting today’s Jan business inventories report to be unchanged after December’s +0.1% increase. The markets are a bit worried about high inventories since the business inventories-to-sales ratio in December rose to a 6-1/2 year high of 1.39 months. U.S. GDP was already hurt by an inventory correction in the second half of 2015 and it appears that the need for a further inventory correction will depress GDP in at least Q1-2016.
FOMC expected to leave policy unchanged — The FOMC today begins its 2-day meeting. The FOMC after the conclusion of its meeting tomorrow will release its post-meeting policy decision statement, its updated macroeconomic forecasts, and a new set of Fed dots with the FOMC members’ federal funds forecasts. Fed Chair Yellen tomorrow will hold a post-meeting press conference.
The market is discounting a near-zero chance for a rate hike announcement tomorrow. The markets have just started to settle down from the Jan-Feb stock market sell-off that was caused by the Chinese turmoil and the plunge in oil prices. The Fed at this point would be well-advised not to rock the boat. However, if China settles down and oil prices and the U.S. stock market hold their recent recovery rallies, then the chances ramp up for a Fed rate hike later this year. The federal funds futures market is discounting the chances for a +25 bp rate hike at +22% by the April FOMC meeting, 58% by the June meeting, 68% by the July meeting, 90% by the Sep meeting, and 100% by the Nov meeting.
EIA report expected to show another increase in U.S. crude oil inventories — The market consensus for Wednesday’s weekly EIA report is for a +2.5 million bbl rise in U.S. crude oil inventories, a -2.5 million bbl decline in gasoline inventories, a -1.0 million bbl decline in distillate inventories, and a -0.2 point decline in the refinery utilization rate to 88.9%. U.S. oil inventories remain in a massive glut at +37.3% (142 million bbls) above the 5-year seasonal average. Meanwhile, product inventories are ample with gasoline inventories at +9.2% above average and distillate inventories +24.1% above average.
