• FOMC minutes (15 Mar): discussion about inflation risks and very expansive policy stance

The ISM non-manufacturing index, which had been lagging behind its manufacturing counterpart since July 2009, has now reached a similarly high expansion level. This indicates that the upswing has become more balanced and sustainable. We expect the ISM non-manufacturing index to have remained stable at 59.7 in March. As the ISM manufacturing index fell slightly to 61.2 in March, the gap between the two indices will have narrowed somewhat.

The FOMC minutes might focus more than before on inflation risks, given that the last FOMC statement on 15 March emphasised upward pressure on inflation caused by energy and other commodities. Given their relatively favourable economic outlook, several FOMC members are concerned about monetary policy remaining too expansive for too long. Although there were no dissenters at the last meeting, voting members Richard Fisher and Charles Plosser in particular have recently expressed unease with QE2 and voiced their conviction that monetary policy should become less expansive before long. Some committee members had already said at January’s FOMC meeting that it might be appropriate to reduce the pace or overall size of the $600bn Treasury purchasing programme which is scheduled to expire at the end of June. Mr Kocherlakota even indicated that the federal funds rate could be raised by 75 basis points by the end of 2011. It will be interesting to see whether the FOMC members discussed the potential consequences of the catastrophic events in Japan, as they were not mentioned in the statement.

After twenty consecutive months of decline, consumer credit has risen every month since October 2010. We expect the moderately favourable trend to have continued in February, with an increase of about $4.5bn, matching the average of the last four months.

Initial jobless claims fell by 6k to 388k in the week ending 26 March, but the previous week’s level was revised up significantly, from 382k to394k. We expect initial jobless claims to have fallen slightly to about 385k in the week ending 2 April. As the graph shows, initial jobless claims have been trending downwards since summer 2009. However, at their current level of just under 400k they are still far above the last trough of around 300k during the years 2005 to 2007, and they are still elevated relative to the change in nonfarm payrolls.

Wholesale inventories rose sharply by 1.1% mom in January. But the inventory-build-up is likely to have been voluntary, as sales actually jumped by 3.4% mom. Given that the inventory-to-sales ratio has fallen to a record-low 1.13, we expect wholesale inventories to have increased by 1.1% mom again in February.

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