You might want to keep your seatbelt fastened during this week. The markets have a number of high-profile economic reports to digest, as they brace for the results of the Federal Reserve’s policy meeting. As usual, the Fed will take center stage with a policy decision that comes at an especially crucial time. Reports are expected to show the economy continues to weaken, but some policymakers fear that more rate cuts could fuel inflation.
Given the success of the Fed’s various lending facilities in boosting liquidity and calming anxiety in the credit markets, especially since the Bear Stearns (BSC) crisis, most economists are betting policymakers will cut their target rate by a quarter-percentage point, to 2%, on Wednesday, Apr. 30, while issuing a statement (due at 2:15 p.m.) that continues to emphasize the downside risks to the Fed’s outlook for economic growth. Futures contracts currently rate the probability of a quarter-point move at about three-out-of-four, with a one-in-four chance for no change and no bets at all on a half-point move.
The Fed will have a good idea of what the economy looked like in the first quarter, given that the GDP data will come out on the morning of the Apr. 30 rate decision. Economists expect first-quarter economic growth to be essentially zero, perhaps either a small plus or a small minus. They expect consumer spending and business investment to post gains, but much smaller than in the fourth quarter, and they look for another very large drop in home construction. Foreign trade and inventories are expected to provide small pluses. Inventories will be of particular interest, because monthly data have suggested stockpiles may have grown faster than businesses wanted. If so, that could turn into a drag on second-quarter GDP growth, as companies cut output on order to bring inventories into better balance with sales.
This quarter promises to be much weaker than the first quarter in terms of overall GDP growth. Consumers are facing up to growing uncertainty about the outlook, soaring gas prices, and rising unemployment, even as housing shows few signs of stabilizing, and as businesses are becoming increasingly hesitant to increase their capital spending and expand their operations.
Two April soundings will provide the first broad look at how the economy began the current quarter. The Institute for Supply Management’s index of manufacturing activity on Thursday, May 1 will give an indication of the extent of production cutbacks, and the Labor Dept.’s employment report on Friday, May 2 will suggest the depth and breadth of job market weakness. Economists expect some further slippage in factory activity, and they look for April payrolls to post a fourth consecutive decline and a further increase in the jobless rate.
Here’s the weekly economic calendar, from Action Economics.
Top Economic Reports
Reports
Date
Time
For
Median Estimate
Last Period
Consumer Confidence
Tuesday, April 29
10:00 a.m.
April
60.0
64.5
Gross Domestic Product (Advance)
Wednesday, April 30
8:30 a.m.
Q1
0.2%
0.6%
GDP Chain Price Index
Wednesday, April 30
8:30 a.m.
Q1
3.0%
2.4%
Employment Cost Index
Wednesday, April 30
8:30 a.m.
Q1
0.8%
0.8%
Chicago Purchasing Managers Index
Wednesday, April 30
9:45 a.m.
April
48.0
48.2
Personal Income
Thursday, May 1
8:30 a.m.
March
0.4%
0.5%
Personal Consumption Expenditures
Thursday, May 1
8:30 a.m.
March
0.3%
0.1%
ISM Index (Manufacturing)
Thursday, May 1
10:00 a.m.
April
48.1
48.6
Construction Spending
Thursday, May 1
10:00 a.m.
March
-0.6%
-0.3%
Domestic Auto Sales (millions)
Thursday, May 1
afternoon
April
5.0
4.9
Domestic Light Truck Sales (millions)
Thursday, May 1
afternoon
April
6.4
6.2
Nonfarm Payrolls (thousands)
Friday, May 2
8:30 a.m.
April
-60.0
-80.0
Manufacturing Payrolls (thousands)
Friday, May 2
8:30 a.m.
April
-35.0
-48.0
Unemployment Rate
Friday, May 2
8:30 a.m.
April
5.2%
5.1%
Average Hourly Earnings
Friday, May 2
8:30 a.m.
April
0.3%
0.3%
Average Workweek (hours)
Friday, May 2
8:30 a.m.
April
33.7
33.8
Factory Orders
Friday, May 2
10:00 a.m.
March
0.4%
-1.3%