WASHINGTON (AFX) - Economic data to be released this week are likely to show a slight upturn in consumer confidence and retail sales following last month's key interest rate cuts, economists said.
But they also cautioned that overall business activity will have remained weak as inventories continue to adjust to low demand. Mark Vitner, economist at First Union Corp argued that the expected pickup in retail sales in January is less a sign of a recovery in growth, but rather a reflection of warmer weather.
"Consumers went back to the malls when the weather got better (but) I don't think it's a sign of the economy picking up again," Vitner said.
He noted that much of the increase was backed by aggressive discounting by retailers who wanted to lower their high levels of inventory.
Aside from the data, economists consider Federal Reserve board chairman Alan Greenspan's assessment of the economy at his address to the Senate Banking Committee on Tuesday the key event of the week. Tim O'Neill, chief economist at Bank of Montreal, recommended monitoring the tone Greenspan uses to describe current economic conditions.
If Greenspan repeats his Jan 25 description, saying growth is near zero, and expressing concern that the inventory correction in manufacturing could spiral into a long-term deterioration in consumer confidence, this would be a sign the Fed will continue on its aggressive easing track.
Goldman Sachs economists wrote in a research note: "We expect that the testimony will convey a clear sense that Fed officials stand ready to ease further should the economy continue to falter". Bank of America chief economist Lynn Reaser added that she does not expect any firm estimates of how much easing will be forthcoming, however, as the Fed will likely want to review additional data before making another interest rate move.
O'Neill said Greenspan could be more balanced in his assessment, after a pickup in auto sales last month, and signs that retail sales are coming back.
Following are the consensus forecasts of Wall Street economists for data to be released in the coming week.
JAN RETAIL SALES, Tuesday (8.30 am): In January, retail sales are expected to have risen by some 0.5 pct, while retail sales excluding auto sales are expected to have increased by 0.3 pct. In December, retail sales rose 0.1 pct and retail sales excluding auto were unchanged from November.
The rebound in retail sales is expected to reflect improved weather conditions in January, after an un-seasonally cold December, according to CSFB economist Jay Feldman. Other economists added that steep discounts also lured consumers back to the malls in January. DEC BUSINESS INVENTORIES, Wednesday (8.30 am): In December, business inventories are forecast to have risen 0.3 pct. In November, business inventories rose 0.5 pct.
According to a note by Bank of America's Lynn Reaser, companies have reacted swiftly in the past months to bring inventories in line with demand.
Both manufacturers and wholesalers reported no change in the value of their goods on shelves and in warehouses for December. Retails may have seen a modest gain in December but appear to have cleared out excess stock in January, Reaser wrote.
JAN IMPORT PRICES, Thursday (8.30 am): In January, import prices are forecast have risen 0.1 pct, according to the economists polled. In December, import prices fell 0.5 pct.
WEEKLY JOBLESS CLAIMS, Thursday (8.30 am): In the week to Feb 10, weekly jobless claims are forecast to have risen by 5,000 to 366,000. In the week to Feb 3, initial claims for regular state unemployment benefits rose 15,000 to a seasonally adjusted 361,000.
The rate of increase in filings for jobless claims is expected to ease despite the continuous number of announced layoffs as many of these are scheduled to take place over a number of months.
JAN HOUSING STARTS, Friday (8.30 am): January housing starts are expected to have dropped around 2.2 pct to 1.540 mln units. In December, housing starts were up 0.3 pct to 1.58 mln units. Economists reckon that the overall housing number will be at a level close to December's pace, underpinned by an improvement in the weather as well as more apartment building.
JAN PPI, Friday (8.30 am): January's producer price index is forecast to have risen 0.3 pct, with core PPI excluding food and energy up 0.1 pct. In December, total PPI was flat while core PPI rose 0.3 pct. Prices at wholesale level are forecast to remain subdued, while a mild increase in food and energy prices will probably add to the total index.
JAN INDUSTRIAL PRODUCTION, Friday (9.15 am): For January, economist forecast a 0.1 pct drop in industrial production, with capacity utilisation unchanged at around 80.6 pct. In December, industrial production fell 0.6 pct, while capacity utilisation stood at 80.6 pct. Industrial production is forecast to remain weak following a weak NAPM reading for January and the 65,000 job losses in the manufacturing sector included in last week's employment report.
However, Reaser noted that the sharp decline of the previous months is likely to come to an end, with the manufacturing sector moving aggressively to control inventories by slashing orders and output.
FEB PRELIMINARY CONSUMER SENTIMENT, Friday (10.00 am): The University of Michigan's preliminary consumer sentiment index for February is forecast at 95.1, up slightly from January's final figure of 94.7. Economists, as well as stock market analysts, will be watching consumer sentiment as it is the only forward-looking data to be released this week and Greenspan mentioned consumer confidence as one of the indicators to pay particular attention to during his Jan 25 Congressional hearing.
However, Paribas Capital Markets chief economist Brian Fabbri warned that not too much attention should be attached to this indicator, as it is only one of the many pieces in an overall picture of growth and inflation considered by the Fed when setting monetary policy. First Union's Vitner added that consumer confidence has probably a way to go before bottoming out.
The energy crisis in California has yet to feed into consumer confidence surveys, he said, predicting that "this will play a role," not only in California, but in several western states. An additional depressing factor on confidence is continued announcements of layoffs at large enterprises, he said.