• Industrial production (Apr): modest increase

In April, the regional manufacturing indices from New York and Philadelphia performed very differently: while the New York Empire index rose more than 4 points to 21.7, the Philadelphia Fed index plunged from an extraordinarily high level of 43.4 to a mere 18.5. As manufacturing is still leading the upswing, we expect both indices to continue to show robust expansion; they could both have risen to 22.0 in May.

The NAHB housing market index unexpectedly fell by one point to 16 in April. The outlook for future sales decreased noticeably, and we thus expect the NAHB index to have remained unchanged in May. Given that a level of 50 is the threshold above which more builders view conditions as good rather than bad, the situation on the housing market is set to remain depressed for the time being.

Housing starts improved by 7.2% mom in March, and could have risen again in April, albeit less sharply, from 549k to 560k. Whereas the NAHB index decreased slightly, building permits increased by more than 11% mom, partly due to better weather conditions. We forecast that building permits will have remained at the previous month’s level of 585k in April. As the graph shows, starts and permits are still at very low levels.

Industrial production went up sharply by 0.8% mom in March, driven by a jump in car production and a rebound in utility output amid widespread gains in other sectors. We expect the industrial production growth rate to have slowed to 0.1% mom in April: aggregate weekly hours in manufacturing merely remained unchanged, and according to industry data, utility output might have fallen somewhat. The ISM manufacturing’s production component declined by 5.2 points, but still remained elevated at 63.8, which indicates an overall rise in production. The capacity utilisation rate could have increased further to 77.5%, thus slowly edging closer to the long-term average of a good 80%.

Leading indicators rose by 0.4% mom in March, particularly due to the steep yield curve and a rebound in building permits. However, we expect leading indicators to have gone up by a mere 0.1% mom in April. As usual, the relatively steep yield curve will have made a big positive contribution, and the improvement in consumer expectations and the stock market will also have had a favourable impact. But the jump in jobless claims and the faster pace of supplier deliveries will have contributed negatively. Leading indicators’ annualised 6-month rate will have slowed for the second consecutive month but, at 7.6%, will still have remained at an elevated level. Thus leading indicators are pointing to sustained, but not accelerating, growth.

The minutes from the FOMC meeting on 27 April will include adjusted projections for growth, inflation and unemployment (see above), which had already been presented at the first ever press conference following the last meeting. There were no dissents to keeping the fed funds rate at an exceptionally low level for an extended period and to proceeding with the Treasury purchase programme as planned. Nevertheless not all FOMC members seem to be comfortable with the assessment that the current sharp rise in inflation is only due to temporary rises in commodity prices, and several Fed representatives have indicated recently that they would welcome a less expansionary monetary policy course to prevent inflation from accelerating. Thus there will have been an intense discussion about the degree of inflationary risks. However, the majority of the FOMC members will have emphasized that the upswing was still moderate and that inflation expectations were quite stable.

Almost as expected, initial jobless claims fell by 44k to 434k in the week ending 7 May. But they have remained elevated, partly because of production disruptions related to the Japanese disaster. We expect initial jobless claims to have fallen to 425k in the week ending 14 May.

Existing home sales rose a stronger than expected 3.7% mom in March, and given that forerunning pending home sales increased by almost 6% in the previous two months, we predict that existing home sales will have gone up again to 5.22m in April. However, the annual rate would still deteriorate from -6.25% to -10%.

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