Reports from Washington may have been slight last week, but such is not the case this week with a full docket coming, highlighted by the heavily anticipated meeting of the Federal Open Market Committee that happens Tuesday and Wednesday. Analysts and economists have been making predictions for the last couple months about what the Federal Reserve is going to do with its policy known as QE3, a practice of buying $85 billion each month in Treasuries and mortgage-backed securities to support the nation’s economy, that the central bank said it would like to start unwinding this year. Most expect the Fed to announce this week that it is beginning to reduce its monthly purchases by about $10 billion as it evaluates if the economy is strong enough to continue on the path to recovery with less of a stimulus package. The FOMC meeting is followed by an announcement at 2:00 PM ET on Wednesday.
Market moving reports this week will also include:
Industrial Production for August – Last month, the Federal Reserve said that industrial production was flat in July, anchored down by a large decline in automotive output. There actually would have been a decline were it not for a downward revision of 0.2 percent growth in June. Production in the motor vehicle and parts component slumped 1.7 percent in July. Manufacturing output was down 0.1 percent, representing the first contraction since April. Helping offset broad declines, mining output increased 2.1 percent in July. Capacity utilization, which measures the amount of factories in use, edged lower from 77.8 percent in June to 77.6 percent. For August, economists are expecting the headline figure to increase 0.4 percent, with capacity utilization inching up to 77.9 and manufacturing to improve by 0.5 percent.
(Note: At the time of publishing, the Federal Reserve had reported that industrial production, output at factories, mines and utilities, rose by 0.4 percent in August, representing the biggest jump in six months. Vehicle sales were a primary driver with an increase of 5.2 percent in August. Manufacturing improved by 0.7 percent. Capacity utilization increased to 77.8 percent.)
To a lesser extent, watch for: the Empire State Manufacturing Survey
Consumer Price Index for August – For July, the Labor Department said that consumer prices rose a seasonally adjusted 0.2 percent, led by gains in gasoline and housing, after a 0.5-percent increase in June, paced by a 6.3-percent spike at the gas pump. "Core" consumer prices, which exclude the volatile food and energy components, rose 0.2 percent. Compared to last July, headline consumer prices were ahead by 2 percent, while core CPI was up 1.7 percent. For August, economists anticipate a 0.1-percent increase in the headline index and 0.2-percent rise in the core index.
To a lesser extent, watch for: the Housing Market Index
The aforementioned FOMC meeting announcement followed by a press conference with Fed Chairman Ben Bernanke (2:30 PM ET)
Housing Starts for August - The Commerce Department reported that housing starts rose in July, mostly because of a 25.5-percent increase in the volatile multi-family segment. Total starts rose 5.9 percent to an annual rate of 896,000 homes. Starts on single-family homes, which make up the majority of starts, slowed by 2.2 percent to a 591,000 annualized pace, marking the lowest level in eight months. At the end of July, housing starts were still about 40 percent below average levels before the housing markets crashed five years ago. Building permits, a proxy of future construction, rose 2.7 percent in July from June. For August, economists are predicting housing starts to reach a 918,000 annualized pace and for building permits to rise to a 952,000 annualized rate.
Initial Jobless Claims for the Week Ended September 14 – Last week, the Labor Department reported that first-time filings for jobless benefits plunged by 31,000 to 292,000 in the week ended September 7. The huge decline came with an asterisk, though, as two unidentified states were performing upgrades, which likely means that not all the claims were processed. Investors will be watching this week for a revised number upon a more complete data set. The four-week moving average, a less volatile measure of labor trends, declined by 7,500 to 321,500, marking the lowest figure since October 2007 (but could be subject to decent-size revision as well). For the latest week, economists are expecting claims to tally 338,000.
Existing Home Sales for August – Last month, the National Association of Realtors reported that sales of existing homes shot-up in July by 6.5 percent, nearly reaching a four-year high as homebuyers looked to make purchases amid rising interest rates. Sales increased to an annualized rate of 5.39 million units (the highest since Nov. 2009 when a tax credit was ending) from a downwardly revised 5.06 million pace in June. Economists expect the pace to have cooled off in August to a 5.23 million unit pace.
Philadelphia Fed Survey for September - The Federal Reserve reported that manufacturing activity in the Philadelphia region slowed in August from its highest level in more than two years in July. The Philly Fed Index dropped from 19.8 in July to 9.3 in August, as new orders dropped to 5.3 from 10.2 and the rate of hiring slid to 3.5 from 7.7 the month prior. For September, economists are expecting the general conditions index to climb back to 10.5.
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