A lack of key U.S. economic data in the week ahead will give economists free rein to focus on statements from the Federal Reserve, which has avoided calling the current slowdown a "recession," even as signs mount that the economy is shrinking.
Minutes from the Federal Open Market Committee's March 18 meeting, which come out Tuesday; a speech Wednesday by FOMC voting member Richard Fisher; and a Thursday speech by Fed Chairman Ben Bernanke will all provide more insight into how central bankers are viewing a retreat in job growth and manufacturing and flat consumer spending.
"It's not a busy week for economic data, which will keep the focus on the banking system," CIBC World Markets economist Avery Shenfeld said in a note to investors.
To a large extent, the market already knows Bernanke's take on the U.S. economy. Last week he told Congress the outlook had worsened since January and that U.S. gross domestic product, adjusted for inflation, could contract in the first half of this year.
Bernanke stressed, however, that a contraction may not turn into a full-blown recession. The standard classification for a recession is two straight quarters of decline in a country's GDP.
The March jobs report, released Friday, cemented many private-sector economists' views that the U.S. economy has achieved recession.
"Bernanke studiously avoided it, but the rest of the world is shouting it from the rooftops: America's economy is in recession," Shenfeld said.
The Labor Dept. said Friday that U.S. nonfarm payrolls fell by 80,000 in March for the third straight month of job losses. Losses came from the all-important service sector, as well as construction and manufacturing, which have been hit by the housing and auto slumps.
Bad, but how bad?
Now economists and strategists are trying to gauge the length and severity of a U.S. recession, and whether the Fed is nearing the end of its rate-cutting cycle.
Economists at Deutsche Bank and Lehman Bros. are taking the position that the recession will be shallow but that the recovery will be bumpy, similar to the recovery from the 2001 recession.
After negative GDP growth in the first half of this year, Lehman sees a temporary boost in the second half from the fiscal stimulus package's tax rebate. Then, "we expect a feeble recovery in 2009, with the economy threatening to fall back into recession," said Lehman Brothers economists Michelle Meyer and Ethan Harris.
Bernanke's comments last week also threw some cold water on the notion the Fed would keep up its regime of hearty rate cuts to soften a possible recession. In particular, he said that "much necessary economic and financial adjustment has already taken place." See full story.
A rehashing of his views over the past few days have made the other Fed missives on tap this week more intriguing for analysts trying to time the end of Fed rate cuts.
Fisher, the president of the Federal Reserve Bank of Dallas and a voting member on the FOMC, was one of two policymakers that voted against the March 18 decision to cut rates by three-quarters of a point. He wanted lighter action.
In the FOMC minutes, "it will be interesting to see the degree of divergence among committee members, given the recent aggressive and unconventional Fed measures," Lehman Bros said.
The financial markets, meanwhile, haven't given up all hopes of further deep rate cuts. After the Labor Dept. report Friday, the futures market bid up the chances the FOMC will decide to cut rates by a half percentage point when it meets in late April. Traders of fed funds futures contracts are already fully pricing in a quarter-point cut, which would bring the target rate to 2% by the end of this month.
Home sales, trade gap, sentiment
The week's economic releases will provide a smattering of data on how close the economy is to putting the worst behind it. See Economic Calendar.
One of the most headline-grabbing will be the pending home sales index for February. Scheduled for release Tuesday, this report will give a sense of how completed home sales will fare in coming months. Economists are anticipating a slight drop after a flat reading in January and will be looking for signs that the housing market is beginning to stabilize.
On Thursday, the government will release the size of the U.S. trade gap for February. After years of escalation, this deficit has narrowed, thanks to the weak dollar and a slowing U.S. economy. Economists are anticipating a drop, or at least slowing, in non-oil imports, while export growth is expected to remain strong. Aircraft-maker Boeing Co.'s (BA:Boeing Co.
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BA 74.88, -0.10, -0.1%) February deliveries schedule may muddy the reading.
Friday brings more trade data, this time on import prices, which likely accelerated on-month in March because of rising oil prices.
A preliminary reading on April consumer sentiment caps the week, likely on a dour note. Economists are forecasting the University of Michigan's much-watched index of consumers will edge down from March. It's been close to the recession lows of the 1980s and 1990s.
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