The one announcement that lent ample support to the markets last week was Treasury Secretary Timothy Geithner's revelation of additional details about the Obama government's plan to absorb bad debts of banks. The blue print of the plan aims at restoring the health of financial firms, which have been central to the current crisis. Additionally, a few economic reports released last week surprised to the upside.
Wachovia Securities noted that the recent data are consistent with its views that the fourth quarter of 2008 and the first quarter of 2009 will mark the darkest hour of the recession. Changes in the tone of such a wide variety of economic reports generally mark a change in the economy's underlying momentum.
The Treasury's public-private investment program for absorbing bad assets will be relying on three separate means to fund the assets. The FDIC will be running auctions of mortgage pools and become a co-owner by entering a partnership with the highest bidder. The partnership will issue FDIC guaranteed debt to finance the pool, with the treasury financing 50%-80% of the equity. Secondly, several investment funds will be formed to buy riskier assets, including some mortgaged-backed securities. The funds will be 50% financed by the treasury. Additionally, the TALF will be expanded to help absorb risky assets dating back several years.
Meanwhile, housing market data last week were refreshing, supporting the theory of an anticipated a small bounce at least in the near to medium term. The National Association of Realtors reported that existing home sales rose 5.1% in February to a seasonally adjusted annual rate of 4.72 million units. Condominium and cooperative sales rose 11.4% compared to a 4.4% rise in single-family existing home sales. Sales rose across all regions, with the Northeast leading in terms of sales growth by showing a 15.6% jump in sales. The months supply of new homes remained unchanged at 9.7 months, while the median selling price declined 15.5% year-over-year to $165,400, although it rose $600 from the previous month.
The Commerce Department's new home sales report showed that new home sales rose 4.7% in February to an annualized rate of 337,000. The months' supply of new homes fell to 12.2 months from 12.9 months in the previous month, while the median sales price of a new home declined to $200,900 in February from $206,800 in January. Annually, median new home sales prices were down 18.1%.
However, economists are still skeptical about a housing bottom. Although FTN Financial Markets believes that the housing market may see some bounce in the near term due to declining mortgage rates and additional White House policy, it is still skeptical that the these actions will provide a long-term relief.
Given the fact that traders are gaining some confidence that we are approaching a bottom, the upcoming week's economic reports will be closely watched for confirmation of the belief. Friday's non-farm payroll report for March is likely to be the focus of attention, as the markets look forward to the labor market to show some signs of stabilization. Additionally, traders may also stay tuned to the S&P Case-Shiller home price index for January, the Conference Board's consumer confidence index for March and the results of the March manufacturing and non-manufacturing surveys of the Institute for Supply Management.
Other reports of significance would be the Chicago-NAPM's report on the region's business activity for March, the National Association of Realtors' pending home sales index, the Commerce Department's factory goods orders report and construction spending report for February and the regularly scheduled weekly jobless claims and crude oil inventory reports. Market participants could also sift through the Fed speeches, including the one to be delivered by Federal Reserve Chairman Ben Bernanke, to gain insights into the Fed's future course of policy actions.
The Labor Department's non-farm payroll employment is likely to show further job losses, although the rate of decline is expected to moderate. That said, one cannot expect stabilization in the job market any time soon, given the fact that the four-week average and continuing claims remain at record high levels. The unemployment rate is also expected to climb sharply in the month.
The ISM's manufacturing index is expected to edge up, although it is likely to remain entrenched in the recession zone. Economists see more weakness in the pipeline and therefore, new orders and order backlogs are likely to decline further. The employment index is also expected to show weakness. That said, the regional surveys for the month relayed mixed messages.
There are no significant economic reports due out on Monday.
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 18.5% year-over-year decline in the 20-city composite house price index for January.
The 20-city composite index fell 18.5% year-over-year in December, marking a record drop. Eight of the twenty cities surveyed showed annual price declines of over 20% and 14 cities had double-digit declines.
The Conference Board is scheduled to release its consumer confidence report for March 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 remained rise to 27 in March.
The consumer confidence index tumbled 12.4 points to an all time low of 25 in February, with the present situation index falling 8.5 points and the expectations index plunging 15.
The results of the National Association of Purchasing Management-Chicago's business survey for March 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 be at 34.7.
In February, the business barometer index rose 0.9 points to 34.2. While the production index rose 5 points to 34.7, the new orders index edged down 0.1 point to 30.6. The index for order backlogs climbed 2.8 points to 29.3.
Philadelphia Federal Reserve Bank President Charles Plosser is scheduled to deliver a speech on regulatory reform to the University of Chicago Booth School of Business at 1 PM ET on Tuesday.
Individual car and light duty truck manufacturers are scheduled to release their sales on Wednesday. These sales are a good indicator of the trend in consumer spending.
The ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 AM ET on Wednesday. The report is usually released two days prior to the Labor Department's employment report.
The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 AM ET on the same day. Economists expect the index to show a reading of 36 for March.
The manufacturing index edged up 0.2 points to 35.8 in February. The new orders index remained little changed at 33.1, while the index of order backlogs rose 1.5 points, but it still remained at depressed levels at 31. Meanwhile, the employment index declined 3.8 points to a record low level. The prices paid index remained unchanged at 29, but it was up from the cycle lows of 18 in December.
The Commerce Department's construction spending report to be released at 10 AM ET on Wednesday is expected to show a 1.6% decline in spending for February.
Construction spending continued to drop in January, with the month witnessing a 3.3% month-over-month decline in spending on construction activities. The previous two months' readings were revised lower. The downward revision portends a further hit to the fourth quarter GDP. Private construction spending fell 3.7% compared to a 2.3% declined in public construction spending.
In the private construction category, spending on single-family construction fell 9.3% and spending on multi-family construction declined 1.2%. At the same time, private non-residential construction tumbled 4.3%, which IHS Global Insight believes is a confirmation that this category is in the early stages of what will be a significant downturn.
Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET on the same day. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is likely to show a 2% decline for February.
The pending home sales index fell 7.7% to 80.4 in January following a downwardly revised 4.8% increase in December. On a year-over-year basis, the pending home sales index was down 6.4%. The index declined in all the regions, except in the West. Meanwhile, light vehicle sales fell to an annual unit rate of 9.1 million in February from 9.5 million in January.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET on Wednesday.
Crude oil stockpiles rose by 3.3 million barrels in the week ended March 20th to 356.6 million barrels and inventories were above the upper limit of the average range.
Meanwhile, distillate fell by 1.6 million barrels, but they remained above the upper limit of the average range. Gasoline inventories declined by 1.1 million barrels and were in the upper half of the average range. Refinery capacity utilization averaged 82.5% over the four weeks ended March 20th compared to 82.3% in the previous week.
The Labor Department is due to release its customary jobless claims report for the week ended March 27th at 8:30 AM ET on Thursday.
Jobless claims unexpectedly increased by a little more than what economists had predicted in the week ended March 21st compared to a downwardly revised reading for the previous week.
The report showed that jobless claims rose to 652,000 from the previous week's revised figure of 644,000. Economists had been expecting claims to edge up to 650,000 from the 646,000 originally reported for the previous month.
The Commerce Department is due to release its report on factory goods orders for February at 10 AM ET on Thursday. Orders for manufactured goods are likely to have decreased 0.3% in the month.
In January, new orders for manufactured goods declined for the sixth consecutive month, dropping by 1.9% to $351.9 billion. Shipments fell 1.7% and unfilled orders declined 1.7%, while inventories edged down 0.8%.
Orders for durable goods, which make up the bulk of the factory goods, unexpectedly increased in February. New orders for durable goods rose 3.4% to $165.6 billion in February compared to expectations for a 2.5% decline.
The February increase was mainly due to a 13.5% surge in machinery orders. However, shipment of durable goods fell 0.5%, while unfilled orders declined by 1.3%. Inventories also moved to the downside, edging down 0.9%. Non-defense capital goods orders, excluding aircraft orders, rose 6.6% following an 11.3% decline in the previous month.
The Labor Department is scheduled to release its monthly non-farm payroll report at 8:30 AM on Friday. The report sheds light on the number of paid employees working part time or full time in the nation's business and government establishments, the number of hours worked in the non-farm sector, the basic hourly rate for major industries and the number of unemployed as a percentage of the labor force. Economists estimate that the U.S. economy lost 656,000 jobs in March and look for an unemployment rate of 8.5%.
The U.S. economy continued to lose jobs in February. The job losses for the month were 651,000, in line with the 650,000 jobs losses expected by economists.
While the goods producing sector lost 276,000 jobs, the service producing sectors lost 375,000 jobs. Barring education and health services, which added 26,000 jobs and the government sector, which added 9,000 jobs, all the other sectors lost jobs, with the weakness more pronounced in the construction, manufacturing and professional and business services sectors.
The unemployment rate based on the household survey was 8.1%, up from 7.6% in the previous month. Economists had been forecasting an unemployment rate of 7.9%. Meanwhile, the average hourly earnings rose $0.03 or 0.16% to $18.47.
The ISM is scheduled to release the results of its non-manufacturing survey at 10 AM ET on Friday. The non-manufacturing index is likely to show a reading of 42 for March.
The Institute for Supply Management's non -manufacturing index slipped to 41.6 in February from 42.9 in January. The business activity index fell 4 points to 40.2 and the new orders index slipped 0.9 points to 40.7. Although the employment index rose 2.9 points, it still remains at a depressed level at 37.3.
Bernanke is due to deliver closing keynote address to Richmond Fed Bank's 2009 Credit Markets Symposium in Charlotte, North Caroline at 12 PM ET on Friday.
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