FOMC meeting: No major changes in the statement
Written on September 20, 2010 by Wiley Hayden
The NAHB index of homebuilders’ confidence declined for the third consecutive month in August. At 13, it was at an 18-month low and nine points below the last peak in May. Homebuilders’ confidence is muted because of the overall economy and the job market not gaining any traction. In August, expectations declined more than the current assessment. We thus do not expect the NAHB index to have increased in September.
Housing starts had improved moderately by 1.7% mom in July. But given the unfavourable development of the NAHB index, we expect housing starts to have remained more or less unchanged in August. The same goes for building permits, which had fallen from 583k to 559k in July.
On Tuesday, the FOMC is expected to maintain the target range for the federal funds rate at 0 to 0.25 %, where it has been since December 2008. Regarding the economic outlook, the statement is unlikely to differ much from the last one, and it could therefore conclude again that the ongoing recovery has slowed. However, we are not expecting decisions on additional quantitative easing measures at this week’s meeting, given that the latest indicators have been mixed rather than uniformly weak. The agreement in July to reinvest principal payments from agency debt and mortgage-backed securities in longerterm Treasury securities was not actually meant by the FOMC as an easing measure. It was rather intended to prevent a “passive tightening” of policy resulting from a shrinking of the Fed’s balance sheet due to prepayments on mortgage-backed securities.
Initial jobless claims fell again, albeit only slightly, by 3k, in the week ending 11 September. The 4-week moving average has declined for four consecutive weeks, and it looks as though the labour market situation is improving somewhat. We predict that initial jobless claims will have gone down to 445k in the week ending 18 September.
Leading indicators, which had risen by 0.1% mom in July, could have gone up a bit more by 0.2% mom in August. As usual, the yield curve will have had the biggest positive impact. Further, albeit modest, positive contributions will have come from real M2, manufacturing working hours, higher stock prices and consumer expectations. But jobless claims and supplier deliveries are expected to have made significantly negative contributions. The annualised 6-month change will have slowed for the fifth consecutive month, from 4.1% to 3.7%.
Existing home sales plummeted by 34% in the last three months, hitting a new low. But they could have risen modestly to 4.15m in August, as pending home sales, which lead existing home sales by about 1 to 2 months, had improved markedly in July.
New home sales had also dropped to a record low in July and could have improved in August due the tax credit rules for first-time home buyers having been extended until the end of September. We predict that new home sales will have gone up from 276k to about 300k in August.
Durable goods orders, which had increased slightly by 0.4% mom in July, could have dropped by about 1.0% mom in August. According to industry reports, aircraft orders are likely to have plummeted, after having risen sharply in July. But we expect nondefense capital goods orders, which plunged in July, to have rebounded. Thus durable goods orders ex transportation might have gone up by about 1.5% mom. However, this would only partly compensate for the 3.7% decline in July. The ISM new orders component indicated expansion in August, but, at 53.1, it was more than 12 points below the peak level seen in the first months of the year.
Similar Posts:
- Housing starts (Sep): Downward correction
- GDP (Q3, 2nd estimate): Slight upward revision
- ISM indices (Dec): Robust expansion levels
- PCE core deflator (Jul): Annual rate still at 1.4%
- Existing home sales down – new home sales slightly up
