RTTNews - We are getting accustomed to the terms less worse readings and a moderation in the slowdown, as mixed economic data continues to trickle in. Although in the near term, there isn't much to cheer about, with economists predicting negative growth at least until the third quarter, we may well have to brace for a prolonged period of negative growth. The only consolation is that the slowdown is likely to continue to slow down, as the benefits of fiscal and monetary policy actions seep in.

And the markets have promptly caught on to this theme of 'recovery in sight' and has been holding firm to their recent gains despite occasional pullbacks. Given the fledgling signs of stabilization, it is highly unlikely that the government will decide to infuse further stimulus measures. According to UBS, the federal stimulus will limit weakness rather than lead to outright strength. The firm estimates that the net federal borrowings will likely be around $2 trillion this fiscal year or 14% of GDP. The fiscal concerns weighed heavily on the U.S. dollar last week, with the euro rising to its highest level against the dollar since the beginning of this year.

Housing reports released last week were mixed. While the National Association of Homebuilders'-NAHB housing market index improved from the month-ago levels, housing starts fell to a record low. The NAHB's survey showed that the housing market index rose to 16 in May from 14 in April. The increase was in line with expectations, with the index gauging current sales conditions rising 2 points to 14, while the index gauging sales expectations for the next six months rose 3 points to 27. However, the index gauging traffic of prospective buyers remained unchanged at 13.

Peter Boockvar of Miller Tabak noted that much of the gains occurred in the West, where most of the foreclosures occurred, probably benefiting from the tax credits offered by the federal and state governments.

Housing starts for April came in at an annualized unit rate of 458,000, marking a record low, while economists had estimated an increase in starts to 520,000. Building permits also declined 3.3%, dropping to 494,000, below the consensus estimate of 530,000. Much of the weakness was centered on multi-family constructions, with multi-family starts dipping to a new cycle low in April.

Jobs data continued to be bleak, with the initial jobless claims declining by 6,000 to 631,000 from the previous week's average of 643,000, which was revised higher by 6,000. The increase in claims reflected plant closures by auto giants General Motors and Chrysler. Meanwhile, continuing claims rose to another fresh record low.

Meanwhile, the Philadelphia Fed's survey showed that the index of business activity rose 1.8 points to -22.6 in May. However, the increase was less than what analysts had expected. Nonetheless, May marked the third straight month of improvement in contraction. The new orders index fell to -25.9 from -24.3 in April, while the backlog of orders index rose slightly to its highest level since September. The shipment index climbed to -19 in May from -35.7 in April, signaling a sharp improvement. Moreover, the future general business activity index rose to 47.5 from 36.2 in the previous month, marking the highest level since November 2004.

In a positive development, the Conference Board's leading indicators index rose 1% in April following a 0.2% decline in March, marking the first increase in seven months. Stock prices, the interest rate spread, consumer expectations, initial unemployment claims, the average workweek and supplier deliveries all contributed positively to the index, with real money supply and housing starts acting as a drag. Meanwhile, the coincident economic index fell 0.2% compared to a 0.5% drop in the lagging economic index.

The minutes of the April FOMC meeting revealed that the members of the Federal Reserve's policy-setting body seem to concur that the pace of decline in some components of final demand has slowed, with consumer spending firming up in the first quarter and housing activity leveling off in February and March.

On the flip side, businesses continued to trim production and employment market continued to deteriorate. Headline and core consumer prices were up moderately in the first three months of the year.

The Fed updated its forecast of growth, inflation and unemployment rate, with the central tendency growth forecast for 2009 pitched at a 1.3% to a 2% GDP decline compared to its earlier estimate for a mere 0.5% to 1.3% contraction. The central bank also nudged up its unemployment rate forecast for 2009 to 9.2%-9.6% from 8.5%-8.8%. The Fed also toned down its growth estimate for 2010 to 2%-3% rate compared to 2.5%-3.3% growth it estimated in January, while it expects an unemployment rate of 9%-9.5% for 2010 versus its January projection of 8%-8.3%. The longer-run forecasts were left unchanged.

The downgrade came despite the Fed noting that conditions have improved in the inter-meeting period. Some economists believe that the tempered outlook is due to a contraction in credit creation, as commercial bank credit contracted both in March and April.

Housing data will once again be in the spotlight in the unfolding week, as traders seek more clarity on the economic outlook. The existing and new home sales reports for April and the S&P Case-Shiller's Index for March are among the key reports the market participants are likely to sift through in the week.

Additionally, traders could evince interest in the preliminary first quarter GDP report, the Commerce Department's durable goods orders report for April and the consumer confidence readings of the Reuters/University of Michigan and the Conference Board. Some degree of importance may also be attached to the results of the ISM-Chicago purchasing managers' index, weekly jobless claims and the EIA's oil inventory report.

The protracted recession is impacting big-ticket purchases by businesses and consumers and therefore, durable goods orders are likely to see further weakness in April. Notwithstanding the small uptick shown by the manufacturing indexes, conditions in the sector still remain wobbly. Against this backdrop, durable goods orders should continue to languish, growth in orders could be a long way off. Meanwhile, Wachovia Securities expects first quarter GDP to be revised higher due to an improvement in the trade data for February and March.

State Street Global Advisors is of the view that consumer spending will be revised down and the impact will be more than offset by upward revisions to net exports and inventories. The firm estimates a 3% contraction in the second quarter, zero or slightly negative growth in the third quarter and a modest 1.2% growth in the fourth quarter.

The Conference Board's consumer confidence index is likely to show an improvement for the third straight month. However, the upside would be limited by rising gasoline prices, which typically rises with the approach of the summer driving season, and the difficult job market conditions.

The markets are closed on Monday on account of 'Memorial Day.'

Tuesday

The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 AM on Tuesday. Economists expect an 18.4% year-over-year decline in the 20-city composite house price index for March.

The Conference Board is scheduled to release its consumer confidence report for May at about 10 am ET on the same day. The survey, which is based on a survey of 5,000 US households, is expected to show that the consumer confidence index rose to 42 in May.

The consumer confidence index for April rose to 39.2 from 26.9 in March. Economists had expected a reading of 29.9 for the month. The April reading marked the highest since November 2008. The expectations index climbed 19.3 points, while the present situation index was up about 2 points.

Wednesday

The National Association of Realtors is scheduled to release its report on existing home sales for April at 10 AM ET on Wednesday. Economists estimate existing home sales of 4.65 million for the month.

In March, existing home sales fell 3% month-over-month to a seasonally adjusted annual rate of 4.57 million. Economists had expected a less severe decline to 4.70 million units. Annually, existing home sales were down 7.1%. The median sales price of an existing home declined 12.4% from a year-ago to $175,200, although it increased from the previous month. While total inventories of existing homes for sale fell during the month, the supply of existing homes at the current sales pace rose to 9.8 months in March from 9.7 in February due to a slower pace of sales.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET on the same day.

crude oil inventories fell by 2.1 million barrels in the week ended May 15th to 368.5 million barrels. Even with the decline, stockpiles remained above the average range for this time of the year.

Gasoline inventories declined by 4.3 million barrels and were below the lower limit of the average range. On the other hand, distillate inventories rose by 1.8 million barrels and were above the upper limit of the average range. Refinery capacity utilization averaged 83.4% over the four weeks ended May 15th, lower than last week's 83.8%.

The demand side of the equation is improving, with the demand for gasoline averaging 9.1 million barrels per day over the four weeks ended May 15th, down 1.2% from the previous week and the demand for distillate fuel averaging 3.5 million barrels per say over the four weeks ended May 15th, a 9% decline from the previous week.

Thursday

The Commerce Department is set to release its durable goods orders report, which gives the value of orders placed for goods designed to last for more than 3 years, at 8:30 AM ET on Thursday. Economists look forward to 0.5% growth in the durable goods orders for April.

In March, durable goods orders fell 0.8% to $160.5 billion following a 1.6% increase in February, with machinery orders serving as a drag on the headline following due to its 3.4% decline. Shipments of durable goods were down 1.5% and unfilled orders declined 1.5%, while inventories also fell, dropping 1.3% in the month.

The Labor Department is due to release its customary weekly jobless claims report for the week ended May 23rd at 8:30 AM ET on the same day.

Initial claims for unemployment benefits fell to 631,000 in the week ended May 16th from the previous week's upwardly revised average of 643,000. Economists had expected claims to decline to 625,000 from the initially reported reading of 637,000 for the past week.

The 4-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations, declined 3,500 to a level of 628,500. The number of people receiving ongoing unemployment help, a statistic known as continuing claims, increased 75,000 to a level of 6.662 million in the week ended May 9th.

The Commerce Department is also due to release its new home sales report for April at 10 AM ET on the same day. The consensus estimate calls for an increase in new homes sales to 363,000.

In March, new home sales edged down 0.6% to 356,000 from the revised February rate of 358,000. Year-over-year, new home sales were down 30.6%. The median sales price of new houses was $201,400, down from $208,700 in February and lower than $229,300 in the year-ago period. Inventories of new home sales for sales at the end of March was 311,000, representing a supply of 10.7 months at the current sales pace compared to 11.2 in February and in March 2008.

Friday

The Bureau of Economic Analysis is due to release its preliminary first quarter GDP report at 8:30 AM ET on Friday. The report is likely to show that the U.S. economy contracted at a 5.5% rate in the quarter.

The advance estimate showed that the U.S. GDP shrank at a 6.1% rate in the first quarter compared to a 6.3% GDP decline in the previous quarter. The contraction was worse than the 4.7% decline expected by economists. On a year-over-year basis, the first quarter GDP declined by 2.6% compared to 0.8% decline in the first quarter.

The decline in fourth quarter GDP compared to the previous quarter reflected negative contributions from exports, private inventory investment, equipment and software, non-residential structures and residential fixed investment. The weakness was offset to some extent by positive contributions from personal consumption expenditures. Imports, which are a deduction from GDP calculations, declined.

Personal consumption rose 2.2%, higher than the estimated 0.9% increase. However, the sore spot was inventories, which deducted 2.8% off growth. The GDP price index was up 2.9%, faster than the 1.8% increase expected by economists.

The results of the Institute of Supply Management-Chicago's business survey for May are scheduled to be released at 9:45 AM ET on the same day. Economists expect the business barometer index based on the survey to come in at 42.

The business barometer based on the survey surged up to its best reading in seven months in April, with the index rising to 40.1 in April from 31.4 in March. New orders, order backlogs and production showed resurgence, although of them still remained in contraction zone. The index of production rose 5.4 points to 4.1 compared to an 11.2-point increase in the new orders index to 42.1.

Suggesting better times ahead, the index of order backlogs jumped 15.6 points to 21.3, while inventories index slid 4.3 points to 30.6. The employment index improved 3.7 points to 31.8.

The Reuters/University of Michigan's final report on the consumer sentiment index for May is scheduled to be released at 10 AM ET on Friday. Consumer confidence is expected to rise in the month, with economists forecasting an increase in the index to 68 from the mid-month reading of 67.9.

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