(weeks of 12 to 18 January 2009)

* Trade deficit (November): shrinking significantly due to weak domestic demand and falling prices
* Inflation data (December): another sharp decline because of cheaper oil and lower utilisation rates
* Retail sales (December): sixth consecutive decrease
* First regional PMIs (January): showing ongoing deep contraction in the manufacturing sector
* Industrial production (December): downward trend accelerating

The trade deficit widened unexpectedly in October, especially in real terms. Oil imports rose sharply as gasoline refineries resumed work after the Gulf coast hurricanes. However, this was only a temporary phenomenon, and as import prices plummeted by 6.7 % mom and domestic demand declined, we expect imports to have fallen significantly in November. As the graph indicates, exports are also dropping due to the global recession, but exports of civilian aircrafts could have rebounded after the Boe- 35 ing strike ended. We expect the nominal trade deficit to have narrowed from $57.2bn to $51.5bn in November, and the real trade deficit is also likely to have decreased. But net exports will nevertheless contribute negatively to GDP in Q4, for the first time since Q1/2007.

The Congressional Budget Office (CBO) forecasts that the Treasury will record a deficit of $83.0bn for December, whereas there were surpluses in the previous three years due to corporate tax payments. But revenues have fallen sharply as a result of the recession, while outlays are rising particularly because of the Troubled Asset Relief Programm. In its updated projection of 7 January, the CBO forecasts that the budget deficit for 2009 will rise from $455bn to almost $1200bn, which would be the highest level ever. CBO assumes realistically that the growth rate will be -2.2% and the unemployment rate will rise to 8.3%. However, the economic stimulus package planned by President Obama and expected to amount to roughly $800bn over two years, was not included in the projection and could push the deficit up to about 11% of GDP in the fiscal year 2009.

By November, import prices had fallen by more than 17% from their peak in July. As petroleum prices decreased by about 30% mom in the statistically relevant period, we expect import prices to have declined again sharply in December by 6.0% mom and 10% yoy. As a result of lower gasoline and oil prices in particular, we expect producer prices to have declined by 2.0% mom in December, which would be nearly as much as in November. We forecast that consumer prices, which fell by 1.0% and 1.7% mom respectively in October and November, will have declined by 1.1% mom in December, mainly due to the continued fall in gasoline prices, weak demand and lower resource utilisation. The annual rate would then turn slightly negative and could remain below zero for several months. This has not happened since 1955. The annual core CPI rate is also trending downwards and could fall from 2.0% to 1.9% in December.

We expect business inventories to have dropped again in November, especially due to the downward correction in energy prices. We already know that factory inventories declined by 0.3% and wholesale inventories by 0.6% mom. Retail inventories could also have decreased slightly again. Thus business inventories could have fallen by 0.4% mom in November.

Since June, retail sales have already gone down by 7.4%. The decline intensified in the last three months because of the sharp fall in gasoline prices. As consumer confidence fell to a record low and fuel prices continued to plummet, we forecast that retail sales will have fallen by at least 1.6% mom in December. As domestic vehicle sales remained on a very low level, retail sales less autos could have dropped somewhat more.

Unlike the Conference Board's measure, the University of Michigan's consumer sentiment improved in December, gaining almost 5 points to 60.1. This was entirely due to a better assessment of current conditions, probably connected with the sharp fall in gasoline prices. However, the decline in household wealth, tight credit conditions and, above all, rapidly increasing unemployment suggest that it could have deteriorated at the beginning of the new year. But given that the weekly ABC consumer comfort poll has stabilized at low levels, we only expect UMI's preliminary January consumer sentiment to have fallen back to 59.0.

Initial jobless claims went down unexpectedly by 24k to 467k in the week ending 3 January. The second consecutive decline does not indicate a downturn in claims, but was caused rather by government offices being closed during the holidays. We expect initial jobless claims to have jumped back to at least 550k in the week ending 10 January, not least due to the automotive shutdowns.

Both the New York Empire and the Philadelphia Fed index have fallen to record lows, but they stabilized in December. As the Philadelphia Fed index is still on a lower level than the New York Empire despite having risen to -32.9 at year-end, we expect the New York Empire manufacturing index to have fallen to -27.0, whereas the Philadelphia Fed index could possibly have remained around the previous month's level of almost -33.

The decline in industrial production might have accelerated to -1.0% mom in December: aggregate working hours went down markedly, the ISM manufacturing production component plummeted to 25.5 and utility production could have contributed slightly negatively. The capacity utilisation rate is likely to have fallen further to 74.5%, compared to the long-term average of over 80%.