Get ready for more dismal October economic data this week. It begins with industrial production, moves on to housing starts, and ends with the leading indicators index. In between, falling gasoline prices will offer some good news on inflation in both producer and consumer prices. But that’s little consolation for an economy that appears to have fallen off a cliff last month.
As a result, economists continue to ratchet their growth projections downward. The latest median forecast of 59 economists surveyed by Bloomberg News expects real gross domestic product to fall 3% in the fourth quarter, followed by a decline of 1.5% in the first quarter of 2009 and no growth in the second quarter, before ekeing out a 1% gain in the third quarter. Based on the dizzying fall in some of the October data, those numbers may still be too high.
The October weakness has been stunning. Car sales, down to 10.6 million annual rate, were the lowest since 1983. The Institute for Supply Management’s index of manufacturing activity dropped to 26-year low, while its index for nonmanufacturing fell to a record low. Nonfarm payrolls shrank by 240,000 workers after September’s 284,000 plunge. And the jobless rate jumped to 6.5%, already exceeding the peak hit in the 2001 recession—with the worst of the 2008 recession still to come.
Consumers, shell-shocked by soaring unemployment, the credit crunch, plummeting stock prices, and the relentless fall in house prices, are leading the downturn. The plunge in October retail buying and car sales suggests real consumer spending in the fourth quarter could drop somewhere between 3% and 4% after declining 3.1% in the third quarter. Except for the disastrous period of credit controls in early 1980, that would be the largest two-quarter drop in consumer spending since World War II.
This week’s inflation reports will be interesting because of the potential support they will imply for consumer buying. Reflecting the drop in pump prices from $3.63 per gallon at the end of September to $2.65 by the end of October, consumer prices last month are expected to fall 0.5%, based on the survey of projections by Action Economics. Current futures prices suggest gas prices could drop close to $2.00 per gallon before the end of the year. That decline would add more to household purchasing power than the $100 billion stimulus from tax rebates earlier this year. The problem, as with the tax rebates, will be getting people to spend it. Right now, households are more into saving than spending.
Finally, the week offers an abundance of Fedspeak. Six Federal Reserve officials, in addition to Treasury Secretary Paulson, will be speaking about the markets and the economy. The Fed’s next policy meeting is still a month away, but there is growing market speculation that policymakers will take their target rate down to a record low 0.5% at their Dec. 16 meeting.
Here’s the weekly economic calendar, from Action Economics:
Top Economic Reports
Report
Date
Time
For
Median Estimate
Last Period
Empire State Index
Monday, Nov. 17
8:30 a.m.
November
-21.1
-22.6
Industrial Production
Monday, Nov. 17
9:15 a.m.
October
0.2%
0.1%
Capacity Utilization
Monday, Nov. 17
9:15 a.m.
October
76.5%
76.4%
Producer Price Index
Tuesday, Nov. 18
8:30 a.m.
October
-1.2%
-1.6%
Producer Price Index (Excluding Food & Energy)
Tuesday, Nov. 18
8:30 a.m.
October
0.1%
0.1%
Consumer Price Index
Wednesday, Nov. 19
8:30 a.m.
October
-0.5%
-0.4%
Consumer Price Index (Excluding Food & Energy)
Wednesday, Nov. 19
8:30 a.m.
October
0.2%
0.2%
Housing Starts (Millions)
Wednesday, Nov. 19
8:30 a.m.
October
0.815
0.810
Philadelphia Fed Index
Thursday, Nov. 20
10:00 a.m.
November
-32.0
-32.4
Leading Indicators Index
Thursday, Nov. 20
10:00 a.m.
October
-0.5%
-0.5%