Week ahead in the US financial markets
By Joseph Brusuelas
A heavy week of data releases will feature the first significant look at the
data from the real economy in October, when the credit markets seized up. The
primary market-moving event, the presidential elections aside, will be the
Friday publication of the October estimate of non-farm payrolls. Dallas Fed
president Richard Fisher will address the economic outlook on Tuesday, Federal
Open Market Committee governor Kevin Warsh will speak on a topic to be arranged
on Thursday and the week will conclude with a glimpse into the economic outlook
by Atlanta Fed president Dennis Lockhart on Friday.
Monday: throughout day
Domestic vehicle sales (October)
Consensus --, Merk--- , Prior --
The initial estimate of third-quarter GDP data implied that real personal
disposable income contracted at a rate of 8.7%. This
should provide another heavy dose of bad news for the auto industry, which as
seen demand for its products severely diminished. Our forecast implies that
domestic vehicle sales will increase by 9.1 million on an annual basis and that
total vehicle sales will see a total of 12.0 million sold over that same
timeframe, with significant risk to the downside.
Before credit markets seized up in October activity in the manufacturing sector
was already well on its way towards signaling a national recession. The
combination of the problems in the credit markets, the strike at Boeing and
declining demand form the external sector should be sufficient to knock the
headline estimate of national manufacturing activity to 41.5.
The noticeable decline in industrial production on the back of falling demand
from abroad and the strike at Boeing should be the primary catalyst behind what
we think will be a 1.5% decline in factory orders for the month. Of interest,
will be the forward-looking indicator of growth inside the non-defense
ex-aircraft category, which should provide a clear indication of an economy
decelerating before the intensification of the credit crisis.
The service sector on the back of weak income and bleak job prospects among
consumers, grew at an anemic rate of 0.6% according to the advance estimate of
third-quarte GDP. We expect that the service sector will continue to show signs
of stress in October, when according to the latest consumer sentiment survey
individuals have clearly become quit bearish on the economy and their own
individual economic situations. We expect the headline to fall to 47.9.
The week ending October 25 should start to pick up some of the recent
reductions in the workforce and drive the headline higher back towards 485,000.
The return to work of workers in South Texas in the aftermath of Hurricane Ike
will offset the ongoing culling of the workforce but that impact will continue
to diminish and set the stage for a move above 500,000 on a continuing basis
over the next few months.
The October payrolls data should capture the pick-up of layoffs throughout the
economy that have begun to build and will be a feature of the economic
landscape over the next two years. The layoffs in the auto sector should be the
primary catalyst for an increase in job destruction in the manufacturing
sector, along with job losses in trade, retail, and financial and business
services. The destruction of employment opportunities in the household estimate
should send the unemployment rate up to 6.3% and the establishment estimate
should show a loss of 225,000.
Purchases of new and existing homes picked up during the traditional summer
buying season on the back of favorable developments in the interest rate
environment and further declines in the median price of homes. However, given
the upcoming pending home sales report we should see significant retrenchment
due to funding problems due to the begging of problems in the credit markets
and the visible increase in uncertainty over employment prospects for workers.
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