This is an excerpt from our Top Down Outlook - The Macro view
Trade balance (Tuesday 12) – Following unexpected improvement in October, shrinking from USD35.7bn to USD39bn, the trade balance deficit is expected to widen to USD36.4bn in November. In view of consumer spending rebounds in recent months, imports are likely to increase more than exports notwithstanding a weak US Dollar and global economic recovery.
Retail sales (Thursday 14) – November retail sales rose above market expectations (1.3% m/m versus +0.5% m/m), indicating strengthened consumer spending in Q4. In light of the December rally by consumer confidence indexes (the Conference Board index rose from 50.6 to 52.9) and evidence that the labour market is bottoming out, we expect retail sales to continue their recent upward trend in December, albeit at a slower pace. Retail sales may increase by 0.4% m/m (+5% y/y), in line with the ex-auto data (+4.8% y/y). The increase in retail sales should anticipate a persistent consumer spending rebound in the short term. However, we expect consumer spending growth to remain subdued in the medium term as the deleveraging process of the household sector is far from over.
Consumer price Index (Friday 15) – After eight months of negative year-on-year change, base effects in the energy sector led headline inflation, turning positive in November (+1.9% y/y). Energy related base effects (oil prices fell by 55% in the period September/December 09) are likely to drive inflation up in December and early 2010, which is likely to edge up to 2.8% y/y. Nevertheless, inflation is expected to increase by a moderate 0.1% when compared to November, since consumer spending remains substantially weak. We expect core inflation to rise by 0.1% m/m and by 1.8% y/y. Inflation is likely to rise in the next few months as economic activity improves, though we expect inflationary pressures to remain subdued in the face of slack capacity utilization.
NY Empire Manufacturing Index (Friday 15) – The Empire Manufacturing Index, the first relevant US business confidence index to be published monthly, fell from 23.51 to 2.55 in December, indicating the possibility that the manufacturing sector’s upward trend may be reaching an end. However, this negative prodigy was denied by other business confidence indexes that posted strong increases in December (the ISM manufacturing index advanced from 53.6 to 55.9). The Empire Manufacturing index is likely to reverse the huge decline in January, rising to 21.7 and bolster estimates that manufacturing production may continue rising early in 2010.
Industrial Production and capacity utilization (Friday 15) – The whole of leading indicators released over the past few weeks anticipate that industrial production’s positive momentum is likely to continue in December and early 2010. The Conference Board leading indicator rose in November for the ninth consecutive month and the ISM manufacturing index remained well above the 50 threshold in December. Moreover, factory orders rose in November for the third straight month. We expect industrial production to increase by 0.7% m/m. Capacity utilization should edge up from 71.3% to 71.7%; a subdued level indicating slight inflationary pressures going forward.
Michigan Sentiment Index (Friday 15) – With equity markets extending on an upward trend the past few months and the labour market showing tentative signals of bottoming out, the Michigan sentiment index may rise from 72.5 to 72.8, anticipating a strengthening of consumer spending in the upcoming months. However, the index will remain well below the long term average (89.6), indicating that consumer spending recovery may nevertheless remain subdued.