US: Durable goods, Beige Book and personal spending and income data awaited – BMO CM

Analysts at BMO Capital Markets explain that surging Boeing orders at the turn of the year should sweep durable goods orders 2% higher in January.

Key Quotes

 “Core” capital goods orders likely rose for a fourth straight month, reflecting an upswing in business spending. After sagging in the past year, machinery bookings spiked higher after the election, as businesses eyed a lighter taxation and regulatory burden.”  

“Sturdy retail sales should offset a pullback in autos to lift personal spending 0.5% in January. Higher gas prices will also pump the headline figure, implying real spending rose a more moderate 0.2%. That’s still a decent start to the year for consumers (unlike last year), and should anchor a near-3% gain in Q1 consumer spending. Sky-high confidence, rising wealth and wages, and prospective tax cuts should keep households in a spirited mood this year. Besides a tighter job market, personal income was boosted by minimum-wage hikes in many states in January. However, core PCE inflation remains in check owing to a strong dollar and competitive retail climate. An expected 0.2% monthly advance should hold the yearly core rate at 1.7%, similar to last year’s average.”

“The Fed’s previous Beige Book (based on information collected to January 9th) said the economy “continued to expand at a modest pace across most regions”, with labour markets “tight or tightening”. Most Districts said “wages increased modestly”, with widespread difficulty in finding skilled workers and “several” saying the same for even less-skilled jobs. Meanwhile, “pricing pressure intensified somewhat”. The forward momentum displayed by the economy since then suggests the tone of the latest report, which will be based on information collected around February 20th, should be a bit more upbeat, though probably not upbeat enough to drumroll a March 15th rate hike.”