USA: labour market report due out on April 25 - the canary in the coalmine

[Guest guest]

Dear friends,

 

Regarding the evolution of the stock market, it will be interesting

to see what news comes out this week. One report of significance is

the Federal Reserve's Beige Book, which is to be released on April

25. This book contains new data on the economy, including on the

labour market, which could affect the stance of monetary policy in

the Feds next meeting on May 9th. I thought it was interesting the

report is to be released on April 25, when the aspects in the SAMVA

USA chart are pretty bad. We´ll see.

 

Best wishes,

 

Thor

 

Growth Weakened as Homebuilding Slumped: U.S. Economy Preview

By Carlos Torres

April 22 (Bloomberg) -- The U.S. economy expanded last quarter at the

weakest pace in more than a year, depressed by the longest continuous

homebuilding slump in a generation, economists forecast ahead of

reports this week.

 

The Commerce Department will report April 27 that gross domestic

product, the sum of all goods and services produced, grew at an

annual rate of 1.8 percent in January through March, according to the

median estimate in a Bloomberg survey of economists. That compares

with a 2.5 percent gain the previous quarter.

 

A gain in consumer spending offset declines in residential

construction and business investment last quarter to keep the

expansion going into a sixth year. Reports on housing and corporate

spending for March may show a gain in momentum as the quarter ended,

pointing to a pickup in growth.

 

``Housing will continue to be a major drag on the economy through the

middle of this year and then it will lessen,'' said Mark Vitner, a

senior economist at Wachovia Corp. in Charlotte, North Carolina. ``We

will probably see growth come back up a little bit this quarter and

in the second half of the year.''

 

Last quarter's growth rate would be the weakest since the last three

months of 2005.

 

Consumer Spending

 

Consumer spending, which accounts for more than two-thirds of the

economy, probably grew at an annual rate of 3.5 percent last quarter,

compared with a 4.2 percent increase in the last three months of

2006, according to the median forecast of economists surveyed by

Bloomberg News ahead of the GDP report.

 

Spending gains have averaged 3.7 percent per quarter over the last

decade.

 

``Consumption appears to have held up quite well, especially

considering the steady escalation in prices at the gas pump over the

course of the quarter,'' said David Greenlaw, chief U.S. fixed income

economist at Morgan Stanley in New York.

 

Housing is a different matter. Spending on residential construction

projects dropped at a 15 percent annual rate last quarter after a 20

percent slump the previous three months, according to a forecast by

economists at Lehman Brothers Holdings Inc. in New York.

 

A drop would extend declines that began in the last three months of

2005, marking the longest such stretch since 1981-82.

 

Builders are cutting back on projects as sales slow. Sales of new and

previously owned homes probably slowed to an annual pace of 7.29

million last month, the lowest in four months, according to

economists' forecasts ahead of reports this week.

 

Home Sales

 

Sales of existing homes, to be reported by the National Association

of Realtors on April 24, dropped 4.3 percent to 6.4 million,

according to the survey median. New-home purchases in March may have

increased to an 890,000 pace after slumping to an almost seven-year

low of 848,000 a month earlier, a Commerce Department report a day

later may show.

 

``I don't think the market is stabilizing,'' Donald Tomnitz, chief

executive officer of D.R. Horton Inc., said on a conference call last

week. The housing markets in California, Florida and Arizona ``are

becoming tougher,'' he said.

 

D.R. Horton Inc., the second-largest U.S. homebuilder, said fiscal

second-quarter profit plunged 85 percent as the weak housing market

forced the company to walk away from options to buy land.

 

Still, home building didn't worsen last month. Housing starts

unexpectedly rose in March, the Commerce Department reported last

weak. Building permits, a sign of future construction, also rose.

 

Business Spending

 

Economists projected business spending also took a turn for the

better at the end of the quarter. Orders for long-lasting factory

goods rose 2.5 percent in March, following a 1.7 percent increase a

month earlier, the Commerce Department is forecast to report April

25.

 

Orders excluding transportation equipment probably jumped 1 percent

after declining 1 percent in February. Economists prefer to track the

latter category because bookings for transportation equipment, such

as commercial airplanes, tend to be volatile.

 

Flat home prices and the rising cost of fuel probably dragged down

consumer confidence last month, economists said. The Conference

Board's confidence gauge on April 24 and a similar measure from

Reuters/University of Michigan on April 27 are expected to drop to

eight-month lows.

 

The April 25 release of the Federal Reserve's Beige Book, the central

bank's compendium of regional economic anecdotes, will also get a lot

of attention this week, economists said. The report will be used by

Fed policy makers at their May 9 meeting to determine if a change in

interest rates is warranted.

 

``We expect the Beige Book to continue to suggest mixed news

regarding the overall health of the economy,'' said Drew Matus, a

senior economist at Lehman Brothers Holdings Inc. in New York, in a

report to clients.

 

Matus said he would be focusing on three ``key'' issues within the

Beige Book: Whether the Fed regional banks report continued declines

in housing, whether the slump in manufacturing is spreading beyond

housing- and auto-related industries, and whether the regional banks

are seeing any cooling in employment.

 

``A lessening in tight labor market conditions may signal a possible

downshift in economic growth,'' said Matus. It could be ``the canary

in the coal mine,'' he said.