ECONOMIC WATCHDOG, April 23
April 23, 2007
The economy will likely take a back seat to earnings news this week, but that doesn’t mean there won’t be some reports worth watching. In fact, with traders concerned about economic growth and inflation, as well as the housing sector, there will be reports that could influence trading. Below is the data on tap this week:
Monday: None
Tuesday: ICSC-UBS Store Sales, Redbook, Existing Home Sales, Consumer Confidence
Wednesday: Mortgage Applications, EIA Petroleum Status Report, Durable Goods Orders, New Home Sales, Beige Book
Thursday: Jobless Claims, EIA Natural Gas Report, Help Wanted Index
Friday: GDP, Employment Cost Index, Consumer Sentiment
The housing sector will get some attention this week with data on both existing and new homes on tap. Existing home sales are expected to show a decline from February’s surprise figure of 6.69 million with economists looking for a reading closer to 6.4 million. Traders will be looking at the supply of existing homes as well, which came in at 6.7 months in February.
New home sales are expected to show some improvement to a level of 890,000 from 848,000 in February. February’s figure was the lowest for new home sales in seven years with supply rising to 8.1 months from 7.3 months in January. As long as the supply of homes—both existing and new—is high, it will create problems for home builders and companies associated with them.
Durable goods orders showed an 8.8 percent drop in January, bouncing back with a 1.7 percent gain in February. For March, estimates are for growth of 2.2 percent. However, the bulk of this gain is expected to come from aircraft orders. In February, orders actually fell 0.1 percent when transportation orders were excluded. However, core capital equipment orders are expected to show a gain of about one percent after falling in four of the past six months.
There has been debate the past few months about whether the Fed will need to ease interest rates to give the economy a boost. There even was talk of a possible recession, which got started by former Fed Chairman Alan Greenspan. However, most economic data of late has shown that the greatest risk lies with inflation. Nonetheless, economists are eager to see how the first quarter GDP fared.
The advanced reading for first quarter GDP is expected to show growth of 1.8 percent. This would be below the 2.5 percent seen in the fourth quarter and the 2.0 percent shown in the third quarter of 2006. Besides the growth figure, traders will be watching the core PCE data. This is a key measure of pricing pressures, rising 1.9 percent in the fourth quarter.
Though the economy has been slowing and rising prices for goods and services have been a concern, consumers have continued to spend. The fear is that energy prices will continue to rise and that this will slow the economy further, ultimately leading to a fall in consumer spending. The Fed has a tough job, but they have made it clear that their biggest worry at the moment is inflation. Therefore, a change in interest rates is not likely in the near term. Fed leaders have stated that they believe prior monetary policy moves and a slowing economy will bring inflation down to a comfortable level.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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