WASHINGTON (AFX) - U.S. economic indicators to be released this week will show consumer confidence declining for a sixth straight month in March, and that while new and existing homes sales remain robust, personal consumption is moderating, economists said.
Forecasts for a continued drop in consumer confidence, and a slowdown in personal income and consumer spending are unlikely to restore confidence to troubled investors, who saw their stocks plummet last week after the U.S. Federal Reserve failed to deliver Wall Street's desired 75 basis point cut in interest rates.
Most economists, however, remain on a heightened state of alert because of expectations that the central bank could move to cut rates by a further 50 basis points, from the current 5.0 pct, if economic conditions worsen before the Fed's next scheduled meeting on May 15.
The Fed said last week that "the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future," and many will be listening intently to Fed Chairman Alan Greenspan as he addresses a Washington economics conference Tuesday for a further update.
Sung Won Sohn, chief economist at Minneapolis-based Wells Fargo & Co, said the key piece of economic data for the week will be the Conference Board's consumer confidence index.
"I think probably consumer confidence...because if consumer confidence continues to plunge that would be a real problem for the economy. On the other hand if consumer confidence stabilises, that is a sign that we could avoid an economic recession."
Sohn forecasts that the index will decline to 104.0 after it fell by a larger margin than expected to 106.8 in February to its lowest level since June 1996.
Gary Thayer, a senior economist at AG Edwards & Sons, said if the index does post another decline it is likely to weigh on consumers' buying plans.
"I think they (consumers) hear a lot of negative economic reports in the news and it's making them a little more cautious," Thayer said. Further news of corporate layoffs was unabated last week, and highlighted by Solectron Corp, one of the world's largest electronics makers, announcing that it was going to lay off 10 pct of its workforce accounting for 8,200 of its employees.
Despite a projected fall in March consumer confidence, the housing market for February is expected to show sustained strength on the back of continued low mortgage rates.
Lynn Reaser, chief economist and senior market strategist at Banc of America Capital Management, said in a note to clients that the coming week's new and existing home sales reports are likely "to show lower mortgage rates supporting the housing market even in the face of a slumping economy and stock market."
Thayer supported this outlook: "It's been one of the better sectors of our economy, and has not been as weak as you would normally see during a recession." Economists will also be focusing on (this) week's durable goods report for February, and the data on February personal consumption and spending.
Stone & McCarthy Research Associates based in Princeton, NJ forecast that durable goods orders fell by 2.1 pct in February, primarily due to a continued weakness in commercial aircraft sales. Consumer spending and personal income growth are seen moderating in February from January.
Despite February's robust employment report, average working hours haven't been quite as strong, said economists in explaining why consumer spending is expected to slow.
Following are the consensus forecasts of Wall Street economists for data to be released this week.
FEB EXISTING HOME SALES, Monday (10.00 am): Economists expect February existing home sales to show a fall of 2.2 pct to a seasonally adjusted, annualized 5.02 mln units.
January's sales were revised to show an increase of 3.8 pct to 5.13 mln units, from a decline of 6.6 pct, due to a software error at the National Association of Realtors (NAR).
The NAR originally said existing home sales had fallen 6.6 pct in January to 4.65 mln units.
Existing home sales in December were revised to an annualized 4.94 mln units, from the initial estimate of 4.98 mln.
FEB NEW HOME SALES, Monday (10.00 am): Economists forecast February new home sales to have remained relatively steady at 920,000 units after sales fell below expectations by 10.9 pct in January to 921,000 units.
The percentage decline in January was larger than expected, although because of the upward revision to December, the level in January was above expectations.
FEB DURABLE GOODS ORDERS, Tuesday (8.30 am): Economists said February durable goods orders will show a 0.1 pct decline after orders fell by a larger-than-expected 6.0 pct in January to their lowest level since June 1999.
January's marked decline was nearly all accounted for by declining orders for aircraft and motor vehicles: commercial aircraft orders fell 49.3 pct.
Orders fell a revised 1.2 pct in December, weaker than the previous estimate of a 2.1 pct gain.
MARCH CONSUMER CONFIDENCE, CONFERENCE BOARD, Tuesday (10.00 am): The Conference Board's consumer confidence index for March is forecast to fall slightly to 105.7 after the index fell by a larger margin than expected to 106.8 in February from a revised 115.7 in January, its lowest level since June 1996 when it touched 100.1.
February's decline in the index marked its fifth consecutive drop, and reflects ongoing consumer concern about current business and employment conditions.
WEEKLY JOBLESS CLAIMS, Thursday (8.30 am): Forecasts indicate that weekly initial claims for regular state unemployment benefits will fall slightly by 1,500 to 377,500 for the week ending March 24, after claims fell by 1,000 to a seasonally adjusted 379,000 for the week ended March 17 from the previous week.
FINAL Q4 GDP, Thursday (8.30 am): Economists said the final revision to fourth quarter GDP will show that the U.S. economy expanded at a 1.1 pct annual rate, unchanged from the preliminary report which was in line with economists' expectations, but slower than the advance estimate of 1.4 pct growth.
The preliminary report recorded Q4 GDP at its weakest quarterly growth rate since the second quarter of 1995, when the economy grew at a 0.8 pct rate.
FEB CONSUMER SPENDING, Friday (8.30 am): Economists expect consumer spending to rise 0.3 pct in February. Personal income is seen rising 0.4 pct. In January, consumer spending rose 0.7 pct, while personal income was up 0.6 pct.
UNIV OF MICHIGAN MARCH CONSUMER SENTIMENT, Friday (10.00 am): Economists said the University of Michigan's final March consumer sentiment index will be revised marginally lower to 91.3, after the index rose unexpectedly to 91.8 in the preliminary report, from 90.6 in February.