WASHINGTON (AFX) - U.S. economic indicators to be released this week will show sluggish retail sales growth in February, with gains largely attributable to the auto industry, and a deceleration of February PPI due to moderating energy prices, economists said.
In a weekly survey by AFX News, a consensus forecast of Wall Street economists indicated that retail sales will rise 0.4 pct in February compared with a unexpected 0.7 pct gain in January. Excluding autos, however, sales are seen rising 0.2 pct.
Of this week's reports, "the most important one is retail sales, and if it comes in soft like I'm thinking, very little change ex-autos, I think it will reinforce or support the case for a 50 basis point move (by the FOMC)," said Mike Moran, chief economist at Daiwa Securities America in New York.
"If it (headline retail sales) comes in unchanged or up 0.1 percent on ex-autos that's a soft report, it would imply that January was just a weather fluke or a response to sales and that underlying demand is perhaps not firm," Moran stressed.
Carol Stone, deputy chief economist at Nomura Securities International in New York, also expects most of the projected gain in February's retail sales report to be driven by the auto sector.
Nomura expects February retail sales to rise 0.4 pct, but excluding autos, sales are seen rising 0.1 pct.
"It's in cars, or vehicle sales as you can see, the segment excluding autos is still quite sluggish," Stone said adding that chain store sales' reports have shown a decline over the month.
She also believes that the Federal Open Market Committee will cut its key fed funds interest rate by 50 basis points to 5.0 pct at its March 20 meeting in reaction to the continued malaise of the economy. Some economists, however, were more upbeat about the state of the economy and said that the economic decline might not be as deep or as drastic as some news reports suggest.
Sung Won Sohn, chief economist at Wells Fargo & Co, said: "The important thing is that they (retail sales) are still going up, we are not getting the picture that consumers have stopped spending altogether."
Promotions and rebates have helped underpinned sales, Sohn said adding that "our expectation is that the worst is behind us and that confidence is beginning to stabilize."
Sohn sees retail sales to rise 0.5 pct in February, and after excluding autos, he sees sales increasing by 0.2 pct.
Despite this belief that consumer confidence is holding up in some areas, other areas of the economy continue to cause market concern, not least falling stock prices.
The stock markets failed to lift themselves out of the gloom for much of last week as the flow of corporate layoffs continued. Last Friday, shares in Intel Corp fell sharply after the microprocessor chip maker slashed its first-quarter revenue forecasts by 25 pct and announced 5,000 job cuts.
Bear Stearns Cos Inc also announced it will be shedding 400 jobs, while market sources said Morgan Stanley Dean Witter & Co is also considering a series of job cuts in the weeks to come.
However, economists said that February's expected PPI data, with a consensus 0.1 pct rise, is likely to reassure the Federal Reserve about inflationary pressures.
The unexpected surge in January PPI is not likely to be repeated in February's report which is forecast to show a notable moderation, largely in response to weakening energy prices.
"I think there will be some brake on energy prices, I'm looking for natural gas to be down, and that will give lower energy prices on average," Moran said.
The New York Mercantile Exchange's front-month April light sweet crude oil futures contract closed down by 38 cents on the day at 28.01 usd a barrel Friday.
Sohn supported Moran's PPI outlook, he said "because of the global economic slowdown the demand for energy should soften, especially for crude oil and natural gas, once the cold winter is over, we should see an additional dip in prices."
OPEC Ministers, who are due to convene in Vienna for a summit on March 16 will be weighing this up as they meet to decide on whether to cut the oil producer's group output to shore up declining demand.
Stone stressed that natural gas prices came down considerably on the spot market during mid-February, and that "we're looking for some moderation there" within the PPI report, and that tobacco price rise gains - which stoked up January PPI - are unlikely to be repeated.
Economists will also be awaiting February's industrial production numbers: output is seen declining by 0.3 pct after falling below expectations by 0.3 pct in January, a fall which would mark a fifth straight decline in the indicator.
Industrial production, which is being affected by the inventory correction, is still adjusting, economists say adding that the fall will also drag down the capacity utilisation rate.
Following are the consensus forecasts of Wall Street economists for data to be released this week.
FEB RETAIL SALES, Tuesday (8.30 am): Economists expect February retail sales to rise 0.4 pct after sales rose above expectations by 0.7 pct in January. Sales rebounded somewhat in January following a weak December, but the sector slowed during the last half of 2000.
Excluding autos, retail sales are seen increasing 0.2 pct after sales rose above consensus by 0.8 pct in January following an unchanged reading in December.
JAN BUSINESS INVENTORIES, Wednesday (8.30 am): Economists forecast that January business inventories will rise 0.2 pct after inventories increased by 0.1 pct in December.
Bank of America told its clients in a note to "anticipate a relatively mild rise in overall inventories, as companies struggled to bring orders and production more in line with sales."
WEEKLY JOBLESS CLAIMS, Thursday (8.30 am): Forecasts indicate that weekly jobless claims will decline by 5,000 to 365,000 after jobless claims fell by 4,000 to 370,000 in the week ending March 3.
FEB IMPORT PRICES, Thursday (8.30 am): Economists said that February import prices will increase 0.1 pct after import prices fell 0.4 pct in January.
Excluding petroleum prices, import prices are seen rising 0.2 pct. Q4 CURRENT ACCOUNT (REVISED), Thursday (10.00 am): Economists said that the revised fourth quarter current account will widen to a record 117.8 bln usd after an initial estimate showed that the current account widened to a record 99.8 bln usd.
The current account was revised to 89.1 bln usd in the third quarter.
FEB PPI, Friday (8.30 am): Economists expect February PPI to rise 0.1 pct after PPI rose above expectations by 1.1 pct in January, the biggest monthly rise in over a decade, largely on the back of higher energy prices.
Core PPI, which excludes volatile energy and food prices, is expected to be flat after core prices rose 0.7 pct in January.
FEB HOUSING STARTS, Friday (8.30 am): Economists said that February housing starts will decline by 1.9 pct to 1.62 mln units after housing starts increased above expectations by 5.3 pct from December to 1.65 mln units in January posting their fastest rate of growth in nine months.
Bank of America said the building sector is countering some of the downdraft on the industrial sector.
FEB INDUSTRIAL PRODUCTION, CAPACITY UTILISATION, Friday (9.15 am): Economists said that February industrial production will decline 0.3 pct after production fell below expectations by 0.3 pct in January, its fourth consecutive monthly decline with weakness reflected across most of sectors.
Capacity utilisation is seen falling by 9.4 points to 70.8 pct after it dropped by 0.5 points to an eight year low of 80.2 pct in January.
UNIVERSITY OF MICHIGAN MARCH PRELIMINARY CONSUMER SENTIMENT,Friday
(10.00 am): The bellwether University of Michigan March consumer sentiment index is seen showing a preliminary 1.9 point fall to 88.7, after the index fell to 90.6 in February to a level last seen in May 1996, and down from 94.7 in January.