Key Events This Week: GDP Revised Lower; PCE And Durables On Deck

This week one of the main highlights will take markets through what DB’s Jim Reid calls “a full on Back to the Future and Quantum Leap (his favorite show as a teenager) moment” as the-every-5-years US GDP revisions take place on Thursday alongside the final Q2 2023 revisions (unch at 2.4% expected). GDP will be revised (lower) from Q1 2005 through Q1 2023, although revisions prior to the first quarter of 2013 will be offsetting across industries within each period. Gross domestic income (GDI) and select income components will be revised from Q1 1979 through Q1 2023. As Reid showed in a recent Chart of the Day, the current big gap between US GDI and GDP could be explained by erroneous recent data showing that net interest payments have been going down in the US as rates and yields have been soaring in the last 2 years.

 

While it’s possible that revisions could make GDI look more healthy (interest payments add income to parts of the economy) but also make interest costs in the economy look more realistic and hurt fundamental models of interest cover for those indebted. Anyway, the revisions are potentially an important event and could make us think differently about the US economy in the recent past and therefore the future.

Outside of the downward GDP revision, the core PCE deflator on Friday is as important. DB economists point out that the data from the August CPI and PPI releases point to a slightly softer reading (+0.20% vs. +0.22% last month), which would have the effect of lowering the year-over-year growth rate by a little over 30bps (to 3.9%). As they highlight, the Fed’s latest SEP forecast for Q4/Q4 core PCE inflation last week was 3.7%, which implies a modest re-acceleration in the monthly prints. This is one reason why they – and many others – believe that the bar is relatively high for the Fed to hike again before year-end.

Staying with inflation, over in Europe, the flash September CPIs kick off with prints from Germany on Thursday. The numbers for the Eurozone, France and Italy will be out on Friday. Friday also sees Tokyo CPI which is an important economy wide lead indicator as the BoJ considers more radical changes to its monetary policy soon.

Elsewhere in the US we have new home sales and consumer confidence tomorrow, durable goods on Thursday with trade numbers and personal income and consumption numbers on Friday.

 

In Europe, Germany sees the Ifo survey today, consumer confidence on Wednesday and labour market data on Friday. In France, consumer confidence will be out on Wednesday and consumer spending data is due Friday. Sentiment gauges will also be out in Italy and the Eurozone on Thursday.

Here is a day by day summary of key events this week courtesy of DB:

Monday September 25

Data: US September Dallas Fed manufacturing activity, August Chicago Fed national activity index, Japan August nationwide department store sales, Germany September Ifo surveyCentral banks: Fed’s Kashkari speaks, ECB’s Villeroy speaks

Tuesday September 26

Data: US September Conference Board consumer confidence, Richmond Fed manufacturing index, business conditions, Philadelphia Fed non-manufacturing activity, Dallas Fed services activity, August new home sales, July FHFA house price index, Japan August services PPICentral banks: Fed’s Bowman speaks, ECB’s Lane speaksEarnings: Costco

Wednesday September 27

Data: US August durable goods orders, China August industrial profits, Germany October GfK consumer confidence, France September consumer confidence, Eurozone August M3Central banks: BoJ minutes of July meetingEarnings: H&M, Micron

Thursday September 28

Data: US September Kansas City Fed manufacturing activity, August pending home sales, initial jobless claims, Italy September manufacturing confidence, economic sentiment, consumer confidence, August PPI, Germany September CPI, Eurozone September services confidence, industrial confidence, economic confidenceCentral banks: Fed’s Powell, Cook and Goolsbee speak, ECB’s Holzmann speaksEarnings: Nike, Accenture, BlackBerry

Friday September 29

Data: US September MNI Chicago PMI, Kansas City Fed services activity, August personal income and spending, PCE deflator, advance goods trade balance, wholesale and retail inventories, UK September Lloyds business barometer, August net consumer credit, mortgage approvals, M4, Q2 current account balance, Japan September Tokyo CPI, consumer confidence index, August retail sales, jobto-applicant ratio, jobless rate, industrial production, housing starts, Italy September CPI, July industrial sales, Germany September unemployment claims rate, France September CPI, August PPI, consumer spending, Eurozone September CPI, Canada July GDPCentral banks: Fed’s Williams and Barkin speak, ECB’s Lagarde speaks

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Finally, looking at just the US, Goldman writes that the key economic data releases this week are the durable goods report on Wednesday and the core PCE report on Friday. There are several speaking engagements from Fed officials this week, including chair Powell, governors Bowman and Cook, and presidents Kashkari, Goolsbee, Barkin, and Williams.

Monday, September 25

10:30 AM Dallas Fed manufacturing activity, September (consensus -13.0, last -17.2)06:00 PM Minneapolis Fed President Kashkari (FOMC voter) speaks: Minneapolis Fed President Neel Kashkari will participate in Q&A at University of Pennsylvania’s Wharton School. A Q&A with audience is expected. On September 22, Kashkari said, “Consumer spending continues to exceed our expectations. I would have thought with 500bp or 525bp of interest rate increases we would have slammed the brakes on consumer spending, and it has not.”

Tuesday, September 26

09:00 AM FHFA house price index, July (consensus +0.4%, last +0.3%)09:00 AM S&P Case-Shiller 20-city home price index, July (GS +0.8%, consensus +0.65%, last +0.92%)10:00 AM New home sales, August (GS -3.0%, consensus -2.2%, last +4.4%)10:00 AM Conference Board consumer confidence, September (GS 105.7, consensus 105.5, last 106.1)10:00 AM Richmond Fed manufacturing index, September (consensus -7, last -7)01:30 PM Fed Governor Bowman speaks: Fed Governor Michelle Bowman will deliver welcoming remarks at a Fed Communities event on rental housing affordability. Speech text is expected. On September 22, Bowman said, “Inflation is still too high, and I expect it will likely be appropriate for the (Federal Open Market) Committee to raise rates further and hold them at a restrictive level for some time to return inflation to our 2% goal in a timely way…Progress on inflation is likely to be slow given the current level of monetary policy restraint.”

Wednesday, September 27

08:30 AM Durable goods orders, August preliminary (GS -1.5%, consensus -0.5%, last -5.2%); Durable goods orders ex-transportation, August preliminary (GS +0.6%, consensus +0.1%, last +0.4%); Core capital goods orders, August preliminary (GS +0.6%, consensus +0.1%, last +0.1%); Core capital goods shipments, August preliminary (GS +0.4%, consensus -0.1%, last -0.3%): We estimate that durable goods orders fell 1.5% in the preliminary August report (mom sa), reflecting a further decline in commercial aircraft orders. We forecast stronger details however, including a 0.6% rise in core capital goods orders and a 0.4% rise in core capital goods shipments, reflecting a pickup in global industrial activity.

Thursday, September 28

08:30 AM Initial jobless claims, week ended September 23 (GS 215k, consensus 215k, last 201k): Continuing jobless claims, week ended September 16 (consensus 1,675k, last 1,662k)08:30 AM GDP (third), Q2 (GS +2.1%, consensus +2.2%, last +2.1%); Personal consumption, Q2 (GS +1.7%, consensus +1.7%, last +1.7%): We assume no revision on net in the third vintage of the Q2 GDP report (previously reported at +2.1% qoq ar).09:00 AM Chicago Fed President Goolsbee (FOMC voter) speaks: Chicago Fed President Austan Goolsbee will deliver a speech on economic policy at the Peterson Institute for International Economics. A moderated Q&A is expected. On September 7, Goolsbee said, “We’ve seen a lot of components of inflation coming down. But the overall level of inflation is still above where we want it to be. And you would need to see [the slowing in inflation] continue with some persistence, to really be feeling like…we’re going to get all the way down.”10:00 AM Pending home sales, August (GS -5.0%, consensus -1.0%, last +0.9%)11:00 AM Kansas City Fed manufacturing index, September (consensus -2, last 0)01:00 PM Fed Governor Cook speaks: Fed Governor Lisa Cook will deliver closing remarks at the Minorities in Banking Forum. Speech text is expected. On September 22, when discussing the potential impact of AI on the economy and monetary policy, Cook said, “Empirical evidence is still patchy, but there is work showing that generative AI improves productivity in a variety of settings…Any large change in the labor force will generate disruptions and challenges that will need to be addressed to help workers adapt and thrive.”04:00 PM Fed Chair Powell speaks: Fed Chair Jerome Powell will host a town hall with educators. He will respond to questions from the in-person audience and participants who join the event virtually. In his post-FOMC press conference on September 20, Powell volunteered that neutral might have risen and that the short-run neutral rate could be higher than the longer run rate shown in the dot plot. We viewed the meeting as raising the bar for rate cuts next year and pushed the first cut in our forecast back from 2024Q2 to 2024Q4.07:00 PM Richmond Fed President Barkin (FOMC non-voter) speaks: Richmond Fed President Tom Barkin will deliver a speech on the monetary policy outlook at a Money Marketeers of New York University event. The event is open to media. On August 22, Barkin said, “the reacceleration scenario has come onto the table in a way that it really wasn’t three or four months ago… If I got convinced that inflation was remaining high and demand was giving no signal that inflation was going to come down, that would make the case [for a higher fed funds rate].”

Friday, September 29

08:30 AM Advance goods trade balance, August (GS -$89.5bn, consensus -$91.4bn, last -$90.9bn)08:30 AM Wholesale inventories, August preliminary (consensus -0.2%, last -0.2%)08:30 AM Personal spending, August (GS +0.5%, consensus +0.4%, last +0.8%); Personal income, August (GS +0.6%, consensus +0.4%, last +0.2%); PCE price index, August (GS +0.37%, consensus +0.5%, last +0.2%); Core PCE price index, August (GS +0.12%, consensus +0.2%, last +0.2%): We estimate personal spending decreased 0.3pp and personal income increased 0.4pp. We also estimate August core PCE inflation was +0.12% (mom) and headline PCE inflation was +0.37% (mom), corresponding to year-over-year rates of +3.79% and +3.38%, respectively.10:00 AM University of Michigan consumer sentiment, September preliminary (GS 67.9, consensus 67.7, last 67.7); University of Michigan 5-10-year inflation expectations, September preliminary (GS 2.8%, last 2.7%): We estimate consumer sentiment edged up 0.2pt and that the report’s measure of long-term inflation expectations rebounded by 0.1pp to 2.8%, reflecting higher gasoline prices.12:45 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will speak at an event hosted by the Long Island Association. Speech text and a moderated Q&A are expected. On September 7, Williams said, “I think we’ve gotten monetary policy in a very good place in terms of we have a restrictive stance of policy…We’ll have to keep watching the data carefully analyzing all of that and really asking ourselves the question: is this sufficiently restrictive. Do we need to maybe raise rates again to make sure that we’re keeping that steady progress in terms of shrinking imbalances in the labor market and bring inflation back down?” He added, “all that talk about we’re about to have a recession has vanished.”

Source: DB, Goldman, BofA,