PPI, CPI and FOMC

PPI, CPI and FOMC

Market Focus: Lots of Trade numbers with price valuations and what used to be important Industrial Production. When the economy was healthy Industrial Production was what kept inflation in check. Still keep your eye on the Fiscal Cliff talks as no one else in Washington seems to have their eyes on it. Volatility is still the name of the game.

Monday:

No Reports

Tuesday:

NFIB Small Business Optimism Index: The index is a composite of ten seasonally adjusted components based on questions on the following: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job opening, expected credit conditions, now a good time to expand, and earnings trend. The Consensus Estimate is for a slight drop from 93.1 to 92.5. What it means to you: Small businesses are responsible for a majority of new job creation and the NFIB focuses on this sector of the economy. The direction of the health of small businesses can portend changes in the stock market.

International Trade: International trade is composed of merchandise (tangible goods and services. It is available nationally by export, import and trade balance. Detailed information is reported on oil and motor vehicle imports. Services trade is available by export, import and trade balance for seven principal end-use categories. The consensus estimate is for a slight widening from -41,5 billion to -42.8 billion. What it means to you: The international trade balance on goods and services is the major indicator for foreign trade. While the trade balance (deficit) is small relative to the size of the economy (although it has increased over the years), changes in the trade balance can be quite substantial relative to changes in economic output from one quarter to the next. Measured separately, inflation-adjusted imports and exports are important components of aggregate economic activity, representing approximately 17 and 12 percent of real GDP.

Wholesale Trade: Wholesale trade measures the dollar value of sales made and inventories held by merchant wholesalers. It is a component of business sales and inventories. The consensus estimate is for inventories to decrease to .4% after last month’s 1.1%. What it means to you: Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a slower rate of growth that won’t lead to inflationary pressures. Wholesale sales and inventory data give investors a chance to look below the surface of the visible consumer economy.

The FOMC Meeting begins: The Federal Open Market Committee meets eight times a year in order to determine the near-term direction of monetary policy. For monetary policy, the FOMC evaluates the relative concerns over the outlook for economic growth (too strong, too weak, about right) and pending inflation (too high, too low, about right). The FOMC then determines whether short-term interest rates should be raised, lowered, or left unchanged to accomplish its objectives of healthy economic growth and low inflation. The FOMC consists of the seven Governors of the Federal Reserve Board (assuming no seats are vacant) and five Federal Reserve Bank presidents. What it means to you: The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars.

ICSC Goldman Store Sales: This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales. What it means to you: Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you’ll have a pretty good handle on where the economy is headed.

Redbook: A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. What it means to you: The pattern in consumer spending is often the foremost influence on stock and bond markets.

3 Year Note Auction

Wednesday:

Import and Export Prices: Import price indexes are compiled for the prices of goods that are bought in the United States but produced abroad and export price indexes are developed for the prices of goods sold abroad but produced domestically. These prices indicate inflationary trends in internationally traded products. The consensus estimate is for export prices to increase .3% but import prices to decrease significantly -.4 versus last month’s 0.5 What it means to you: Changes in import and export prices are a valuable gauge of inflation here and abroad. Furthermore, the data can directly impact the financial markets such as bonds and the dollar.

EIA Petroleum Report: The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S. The level of inventories helps determine prices for petroleum products. What it means to you: Petroleum product prices are determined by supply and demand – just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in crude oil prices – or price increases for a wide variety of petroleum products such as gasoline or heating oil.

FOMC Announcement: The FOMC also determines whether the Fed should add or subtract liquidity in credit markets separately from that related to changes in the fed funds rate. The Fed announces its policy decision (typically whether to change the fed funds target rate) at the end of each FOMC meeting. The consensus estimate is for the Federal Funds Rate to remain the same. What it means to you: Interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.

Chairman Press Conference: The Fed announced on March 24, 2011 that Fed Chairman Ben Bernanke will hold press briefings four times a year to explain the FOMC’s latest quarterly economic projections. According to the Fed, the “introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve’s monetary policy communication.” What it means to you: The chairman’s press conference allows for the financial markets and public in general to learn more about why and how the monetary policy decision was made and to learn more about FOMC views on the direction of the economy—including real growth, inflation, and unemployment. On the days in which the FOMC puts together its economic forecasts, there is a double opportunity for the Fed to move markets

Treasury Budget: The U.S. Treasury releases a monthly account of the surplus or deficit of the federal government. Changes in the budget balance of the annual fiscal year (which begins in October) are followed as an indicator of budgetary trends and the thrust of fiscal policy. What it means to you: In addition to following the trend in the budget deficit or surplus, investors can gain valuable insight to the state of the economy by looking at the government’s tax receipts. Higher tax receipts lead to an improved deficit situation when economic conditions are strong; conversely, lower tax receipts reflect a sluggish economic environment.

10 Year Note Auction

Thursday:

Weekly Jobless Claims: New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility. The consensus estimate is for no change from 370,000. What it means to you: By tracking the number of jobless claims, investors can gain a sense of how tight, or how loose, the job market is. If wage inflation threatens, it’s a good bet that interest rates will rise.

Producer Price Index: The Producer Price Index (PPI) is a measure of the average price level for a fixed basket of capital and consumer goods received by producers. The consensus estimate is for a -.5% gain in the overall number and a .2% gain in the core rate. More than last month’s -.2%. The overall number is expected to be up from last month’s .3%. What it means to you: Changes in the producer price index for finished goods are considered a precursor of consumer price inflation. If the prices that manufacturers pay for their raw materials rise, they would have to raise the prices that consumers pay for their finished goods in order to not decrease profit margins. Changes in the supply and demand for labor will affect wage changes with a delay because wages are institutionalized and contractual. However, commodity prices react more quickly to changes in supply and demand.

Retail Sales: Retail sales measure the total receipts at stores that sell durable and nondurable goods. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth. The consensus estimate is for a rise of .6% more than last month’s -.3. And an increase of .0.0% excluding autos after last month’s 0.0% increase. What it means to you: Retail sales are a major indicator of consumer spending trends because they account for nearly one-half of total consumer spending and approximately one-third of aggregate economic activity.

Business Inventories: Business inventories are the dollar amount of inventories held by manufacturers, wholesalers, and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity. The consensus estimate is for a decrease from last month’s .7 to .4. This will still leave inventories historically low. What it means to you: Rising inventories can be an indication of business optimism that sales will be growing in the coming months. By looking at the ratio of inventories to sales, investors can see whether production demands will expand or contract in the near future. For example, if inventory growth lags sales growth, then manufacturers will have to boost production lest commodity shortages occur. On the other hand, if unintended inventory accumulation occurs (that is, sales do not meet expectations), then production will probably have to slow while those inventories are worked down.

Bloomberg Consumer Comfort Index: A weekly, random-sample survey tracking Americans’ views on the condition of the U.S. economy, their personal finances and the buying climate. What it means to you: The pattern in consumer attitudes can be a key influence on stock and bond markets. Consumer spending drives two-thirds of the economy and if the consumer is not confident, the consumer will not be willing to spend. Confidence impacts consumer spending which affects economic growth.

Money Supply

30 Year Note Auction

Friday:

CPI: The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. The consensus estimate is for an increase of 6% after last month’s .0% increase and an increase in the core rate of -.2% (a decrease over last month’s .1%). What it means to you: The consumer price index is the most widely followed monthly indicator of inflation. The CPI is considered a cost-of-living measure since it is used to adjust contracts of all types that are tied to inflation. For monetary policy, the Federal Reserve generally follows “headline” and “core” inflation. This latter measure excludes the volatile food and energy components. The Fed’s preferred inflation measure is not the CPI but the personal consumption price index because it reflects what consumers are actually buying during any given period-the component weights are updated annually while those for the CPI are updated infrequently.

Industrial Production: The index of industrial production is available nationally by market and industry groupings. The major groupings are comprised of final products (such as consumer goods, business equipment and construction supplies), intermediate products and materials. The industry groupings are manufacturing (further subdivided into durable and nondurable goods), mining and utilities. The capacity utilization rate — reflecting the resource utilization of the nation’s output facilities — is available for the same market and industry groupings. The consensus estimate is for an increase from last month’s -.4% to an increase of .3% in the month over month. What it means to you: Industrial production and capacity utilization indicate not only trends in the manufacturing sector, but also whether resource utilization is strained enough to forebode inflation. Also, industrial production is an important measure of current output for the economy and helps to define turning points in the business cycle (start of recession and start of recovery).

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