The Week Ahead: FOMC Meeting and Q4 GDP Numbers

Matteo Radaelli submits: A preview of next week's data (economic data estimates are mine):Consumer confidence index (Tuesday, Jan. 25) – The Conference Board’s consumer confidence index fell in December to 52.5 amid uncertainties on the labor market. In line with the decline in the preliminary reading of the University of Michigan consumer confidence for January, we expect the Conference Board index to also decline in January, from 52.5 to 52. The main reason behind the decline in consumer confidence is likely to be once again the weakness in the labor market. Should our estimate prove correct, the index would remain well below its long-term average (92.9), signalling that consumer spending growth may be moderate in the next few months. Source: BloombergFOMC, monetary policy meeting (Wednesday, Jan. 26) – No major pieces of news are expected in the statement that the Federal Open Market Committee ((FOMC)) will release at the end of its first 2011 monetary policy meeting. Indeed, we believe that the FOMC will confirm what it said in its December meeting: “The Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month." As regards the economic outlook, the Fed should confirm as in the December meeting “that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment” and that “Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward." With Kansas City Fed President Hoening leaving the FOMC as rotating member, the role of dissenting member is likely to be taken by Philadelphia Fed president Charles Plosser, who has been critical about QE2 in the last few months. However, we expect that the program will continue in the next few months as planned. New home sales (Wednesday, Jan. 26) – New home sales rebounded by 5.5% m/m to 290K in November, confirming that the housing market may have found a bottom over the summer. Our estimate is for new home sales to slightly extend the upward trend in December, rising to 295K. However, the data should remain close to its historical low – the all-time low for the data is the 274K, recorded in August – confirming that housing is not likely to give a positive contribution to economic growth in the next few quarters.Durable goods orders (Thursday, Jan. 27) – Durable goods orders fell by 0.3% m/m in November as the transportation component was a drag on the data; the ex-transportation data rose by 3.6% m/m. In December we expect durable goods orders to rise by 1.6% m/m as the transportation component is likely to post a strong rebound following November’s decline. The ex-transportation figure should increase by a more modest 0.3% m/m. The increase in durable goods orders should confirm that the industrial sector's outlook in the short term will remain positive. Pending home sales (Thursday, Jan. 27) – In line with others' housing market data, pending home sales rebounded in the last few months, indicating that the housing market sector may have found a bottom over the summer. Our estimate is for pending home sales to rise by 2.4% m/m in December, signalling that the sector’s recovery is likely to continue in the short term. Gross Domestic Product (Friday, Jan. 28) – Having risen by an annualized 1.7% in Q2 and by 2.6%, we expect the U.S. economy to expand by a stronger 3.5% in Q4. The main reason behind the acceleration in the rate of growth is likely to be the increase in consumer spending (+1% q/q) and a positive contribution from net trade (exports at +1.2% q/q and imports +0.8% q/q). Public spending and investments are likely to increase at a modest pace. Should our estimate prove correct, 2010 GDP will grow by 2.9%. In 2011 we expect an acceleration of the rate of growth thanks to the new fiscal stimulus implemented by the Obama administration; our base scenario is that GDP may grow by 3.2% in 2011. [Click to enlarge]Source: My estimates Disclosure: I am long Nasdaq 100 via Italian ETF.Complete Story »