Stimulus Guessing Game Continues
2012-09-04 16:31:27
Federal Reserve Chairman Ben Bernanke's Jackson Hole address did lift market sentiment slightly despite some economists viewing his comments at the symposium to be much weaker than the FOMC minutes of the July 31st to August 1st meeting. While the minutes relayed the message that many committee members judged the need for additional monetary policy accommodation fairly soon, Bernanke's comments were more laidback, towing in line with the central bank's clichéd assertion of standing ready to support should conditions deteriorate. That said, some firms like Capital Economics feel the Chairman has taken a step further along the path to more policy stimulus. The firm sees the possibility of QE III announced at the mid-September meeting. Bernanke came out strongly in support of the effectiveness of unconventional monetary policy. According to the firm, his speech reflected his belief that more action is needed, as the economic situation is far from satisfactory.
Whatever be the case, even a third round of stimulus is expected to provide only a small boost to the economy. It is near to impossible that the economy grows at its trend-like pace next year even if stimulus support is forthcoming.
The National Association of Realtors reported last week that its pending home sales index rose 2.4 percent month-over-month in July, while on a year-over-year basis, pending home sales were up 12.4 percent. Pending home sales were up in Northeast, Midwest and South, while pending sales were down in the West.
The ISM-Chicago's manufacturing survey showed that its business barometer fell to 53 in August from 53.7 in July. The sub-indexes were slightly better than the headline reading, with the production index rising 3 points to 57.4 and the new orders index also rising to 54.8. The employment index rose about 4 points to 57.1, while the order backlogs index slipped about 11 points to 41.7.
Personal spending rose by 0.4 percent month-over-month in July, the biggest advance in five months. Real spending also rose 0.4 percent. At the same time, personal income rose 0.3 percent and the savings rate ticked down to 4.2 percent. The core price consumption expenditure index remained unchanged compared to the previous month. Annually, the index was up 1.6 percent, marking the slowest pace of growth since October.
That said, consumer sentiment is still wavering. Revised estimates of a survey by Reuters and University of Michigan showed that the consumer sentiment index was downwardly revised to 74.3 for August from the preliminary estimate of 73.6.
Labor worries come to the forefront in the unfolding week, as a trio of key labor market statistics is due in the unfolding week. Traders may keenly watch the Labor Department's non-farm payrolls report due on Friday, the ADP's private sector employment report and the weekly jobless claims report. The results of the Institute for Supply Management's manufacturing and non-manufacturing surveys for August are also on the investors' radar.
Auto sales for August, the revised second quarter productivity & costs report, the Commerce Department's construction spending report for July and announcements concerning the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.
Non-farm payrolls may have expanded at a slower pace in August and the unemployment rate is most likely to remain stuck at 8.3 percent. The retail and public sectors are expected to act as a drag on the labor market, even as healthcare, education, professional services and tourism sectors show job growth. Sub-par job numbers would support the case for a Fed easing.
Most regional manufacturing surveys have suggested soft manufacturing conditions in August. Therefore, the ISM's manufacturing index may not have broken above the neutral "50' level.' According to BMO Capital Markets, manufacturing production has been weighed down in recent months by soft consumer demand and foreign demand.