Economic Forecasts and Analysis For U.S. Financial Markets (Nov 10-14)

By: Joseph_Brusuelas

The week ahead in financial markets will see a modest quantity of data that will hit the tapes largely on Thursday and Friday. The major market moving events will be the Friday release of the October advance retail sales data and the Thursday release of the US Trade Balance, Jobless Claims and the US Budget Statement. On Friday in Frankfurt Germany, Fed Chair Bernanke and ECB President Trichet will lead a cast of global central banking all-stars that will address monetary policy within the current global financial crisis.

Fed Talk

The week in Fed talk will see Ben Bernanke and ECB President Jean-Claude Trichet speak as part of a panel discussion on monetary policy at a conference hosted by the ECB in Frankfurt, Germany. Bank of Israel Gov. Fisher, People's Bank of China Deputy Gov. Su Ning and Banco de Mexico Gov. Ortiz will also participate on the panel on Friday November 14. The week will kickoff with Treasury's interim assistant secretary for financial stability Neel Kashkari addressing the troubled asset relief program on Monday. Minneapolis FRB President Stern will speak on both Wednesday and Thursday, topics TBA. Thursday will see Philadelphia Fed FRB President Plosser speak on the economic outlook.

US Trade Balance (September) Thursday 08:30 AM

The trade balance for September should see one final month of solid gains on the back what was still decent demand from the external sector for US goods and services. Our forecast implies a decline in the deficit to $57.4bln for the final month of the third quarter. Across purchasing managers surveys, demand from the external sector held up rather well all things considered, and even the disappointing factory orders for the month, saw a pick up in orders for farm machinery that almost surely was a function of demand from abroad. On a real basis, the fall in the cost of imported oil will drive the real goods balance and the ex-petroleum component towards lows not seen in recent years.

Jobless Claims (Week Ending November 8) Thursday 08:30 AM

The week ending November 8 should see another increase in continuing claims that should push the tally towards 3.90mln and the headline should increase to 485K. With the impact of the Gulf Coast hurricanes moving out of the series, the underlying trend should continue its slow march towards 500k. The primary focus of our analysis continues to be the fact that unemployed workers are facing a deteriorating labor market which is necessitating a much longer stay on the benefits rolls for a much longer period of time.

US Budget Statement (October) Thursday 10:00 AM

Given the extraordinary response of the federal government outlays to address the financial crisis and the sharp deceleration in overall economic activity have created the conditions whereby the market should ready itself for a fiscal year of unusually sharp increases in the operating deficit. Of particular importance will be the pace of decline in the total receipts, which were down -1.7% year over year through the end of the fiscal year 2008. We anticipate a swing from the $45.72bln surplus in September to a -$125bln deficit in October.

Import Price Index (October) Thursday 08:30 AM

The decline in commodity prices during the month of October was the worst single monthly performance in nearly 52 years. This development should underlie a third straight month of declines in inflation via the import channel. Our forecast implies a decline of -4.2% on a monthly. On an annual basis, we expect to observe an increase of 12.62%, down from the 14.5% posted in September.

Advance Retail Sales (October) Friday 08:30 AM

The 3.1% contraction in real personal consumption in the third quarter of 2008 provides a vivid illustration of the consumer led recession that still has some miles to go before it reaches its completion. Consumers are in the process of building up cash reserves for the trouble ahead and the near death spiral in auto sales provides a fair amount of insight into what we expect to see in the rate of personal consumption in the near term. We anticipate that the nadir for the current contraction in overall economic output will be the final quarter of 2008 and we expect to see that demonstrated in the advance retail sales data. Our forecast implies that retail sales will see a -2.2% decline month over month and the core ex auto, will fall -1.4% over that same interval.

University of Michigan Consumer Sentiment Survey (November) Friday 10:00 AM

Given the recent turbulence in financial markets, the acceleration of job cuts and the ongoing tightening of credit should combine to send the preliminary estimate of consume sentiment to recent lows in the survey. We think that the real problems in the economy and the concern over the trajectory of unemployment will outweigh the election of a new US President and the fall in gasoline prices and consumer sentiment should fall to 54.

Business Inventories (September) Friday 10:00 AM

One of the troubling developments that have accompanied the decline in real personal consumption has been the in increase in inventory to sales ratios in the macro data of late. The inventory ratio inside the August business inventories report stands at 1.27 months, which is exactly where it stood one year ago, before the market observed a inventory inspired contraction in overall output. The context of the current ratio of inventory to sales, is that of a contraction in real personal consumption and is one of the factors behind our very bearish estimate of a decline in overall growth in the fourth quarter of -4.1%. We expect to see business inventories increase 0.2% in September, followed by a significant period of constrained growth in inventories.

By Joseph Brusuelas
Chief Economist, VP Global Strategy of the Merk Hard Currency Fund

Bridging academic rigor and communications, Joe Brusuelas provides the Merk team with significant experience in advanced research and analysis of macro-economic factors, as well as in identifying how economic trends impact investors.  As Chief Economist and Global Strategist, he is responsible for heading Merk research and analysis and communicating the Merk Perspective to the markets.

Mr. Brusuelas holds an M.A and a B.A. in Political Science from San Diego State and is a PhD candidate at the University of Southern California, Los Angeles.

Before joining Merk, Mr. Brusuelas was the chief US Economist at IDEAglobal in New York.  Before that he spent 8 years in academia as a researcher and lecturer covering themes spanning macro- and microeconomics, money, banking and financial markets.  In addition, he has worked at Citibank/Salomon Smith Barney, First Fidelity Bank and Great Western Investment Management.

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