*If the U.S. government remains shut down, several of the scheduled economic releases listed below will be cancelled.
The U.S. government has been shut down since October 1 because Congress has been unable to agree on a budget deal.
As such, most of the economic data provided by the U.S. government has been delayed and is accumulating in what is quickly evolving into an avalanche of economic data.
Here's your Monday Scouting Report:
- Forget About The Shutdown, Fear The Debt Ceiling : The ongoing government shutdown has stolen the headlines and the story has gone mainstream. However, most economists and even politicians agree that the bigger risk to the economy is the impending debt ceiling.
"If the debt limit is not raised before the Treasury depletes its cash balance, it could force the Treasury to rapidly eliminate the budget deficit to stay under the debt ceiling," wrote Goldman Sachs' Alec Phillips and Kris Dawsey this weekend. "We estimate that the fiscal pullback would amount to as much as 4.2% of GDP (annualized). The effect on quarterly growth rates (rather than levels) could be even greater. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed very quickly."
Economic Calendar (*These releases will be delayed if the U.S. government is shut down.)
- Consumer Credit (Monday) : Economists estimate consumer credit balances increased by $12.0 billion in August. "We forecast the change in the volatile nonrevolving credit component (mainly auto and education loans) at $12.5bn for August, leaving the component up 8.0% year-over-year," said Credit Suisse's U.S. economics team. "The driving force behind growth in nonrevolving credit earlier this year had been increasing student loans. Since May, however, auto loans appear to have contributed sizably to nonrevolving’s gains."
- * Trade Balance (Tuesday) : Economists estimate the trade deficit widened to $39.5 billion in August. "[T]he United States still imported three times more petroleum products than it exported in July, so higher oil prices in August likely boosted imports more than exports," said Wells Fargo's John Silvia. "At the same time, persistent troubles across much of Europe and weakness in several emerging markets has restrained export growth and should contribute to the trade deficit widening to $40.6 billion."
- * Job Openings And Labor Turnover (Tuesday) : There were 3.689 million job openings in July. "The relationship between job openings and unemployment has changed since the recession," said UBS's Sam Coffin. "Unemployment is much higher for a given job openings rate than it had been. However, over the past year, the job openings rate has been fairly steady, whereas the unemployment rate has been falling, suggesting the start of a reversion toward the prior job openings/unemployment relationship."
- Federal Open Market Committee Minutes (Wednesday) : The minutes of the September FOMC meeting will be published at 2:00 p.m. ET. "Since the meeting, a number of Fed speakers indicated that the decision not to taper last month was a “close call” and Chairman Bernanke, along with other Fed policymakers, have indicated that fiscal uncertainty was a significant factor in their decision," said Deutsche Bank's Brett Ryan. "Market participants will look to see just how close the vote was, as well as attempt to glean information on how the tapering process could proceed"
- Initial Unemployment Insurance Claims (Thursday) : Economists estimate jobless claims ticked up to 310,000 during the week ending October 5. "We do not expect the government shutdown to have a major impact on the initial claims data," said JP Morgan's economists. "And while government workers can file for unemployment insurance, their claims are separated from the regular claims pool—there was a massive jump in the number of claims filed in federal programs around the 1995/1996 government shutdown, but the standard initial claims number did not increase significantly. Data on claims in federal programs are reported with an additional lag of one week relative to the regular initial claims data."
- Monthly Budget Statement (Thursday) : Economists estimate the U.S. Treasury will report a $65.0 billion surplus for September.
- *Producer Price Index (Friday) : Economists estimate that PPI climbed 0.2% in September, 0.1% excluding food and energy. "The PPI should post the first drop in five months, while the core PPI should rise by the most in three months," predicted Credit Suisse. "The headline drop should be the result of lower gasoline prices in September and an influence from sharp declines in farm prices received in both August and September. The moderate core gain should reflect continued expansion in manufacturing output. "
- *Retail Sales (Friday) : Economists estimate that sales were flat in September; excluding autos and gas, economists are looking for an increase of 0.3%. "Overall we expect that retail sales remained flat last month," said Wells Fargo's Silvia. "Consumers still struggle amid relatively high unemployment and modest job growth. The ADP unemployment report points to a continuation of that theme for September. High unemployment weighs on wage growth, which further inhibits retail sales growth."
- Univ. of Michigan Consumer Confidence (Friday) : Economists estimate that preliminary measure of this sentiment index fell to 76.0 from 77.5. "The government shutdown and recent weakening in equity markets will likely weigh on sentiment," said JP Morgan's U.S. economics team. "But so far, the daily Rasmussen Consumer Index has not lost much ground since the government shutdown began. The Michigan index also did not react very drastically to the government shutdown during the 1995/1996 shutdown episode."
- *Delayed data : Eventually, the government data agencies will publish reports on August construction spending, August factory orders, and September employment.
With the stock market barely off of its all-time high, its pretty clear that investors and traders feel confident that we'll get through this ongoing budget debate without too many disruptions.
"We believe the risk of a U.S. debt default is not high enough at the moment to justify selling — but to be clear, a debt default would have serious negative consequences to our positive thesis on equities were it to occur," said JP Morgan's Tom Lee. " As we noted earlier in the week, equity markets have shown decent performance once a shutdown begins. The greater risk, obviously, is of a potential debt default. [T]his does not yet appear to be a material concern of the debt markets (as evidenced by CDS spreads) and we believe both political parties have enormous interest in avoiding this outcome as well."
In other words, a default is most likely to be avoided. But if it isn't, watch out.
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