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Craig James – Chief Economist – CommSec

Unemployment in focus

·       A bevy of economic indicators is scheduled for release in the coming week. Arguably the employment figures on Thursday are the stand-out. In addition the minutes of the last Reserve Bank Board meeting alongside two speeches by Reserve Bank officials and the Reserve Bank Bulletin will garner interest. In the US, a Federal Reserve meeting and inflation data are the highlights.

·       In Australia, the week kicks off on Monday, with the Reserve Bank release of January data on credit and debit card lending. Consumers are using credit cards more often but paying off outstanding balances by the due date.

·       On Tuesday the Reserve Bank releases minutes of the Board meeting held on March 1. Given that the decision to keep rates on hold was widely expected, and the accompanying statement was virtually a carbon copy of the prior month, investors will certainly be hoping to get a better sense of central bank thinking. We expect the minutes to focus on the lift in activity levels across the economy.

·       On Tuesday, the weekly consumer sentiment reading is released alongside a report from the Bureau of Statistics (ABS) on new car sales. The ABS recasts the industry data on new car sales, converting the original data into seasonally adjusted and trend estimates. The Federal Chamber of Automotive Industries has already reported that 96,443 new cars were sold in February, up 6.7 per cent on a year ago. Interestingly while we have been seeing a recent lift in consumer spending, the results are more amplified when it comes to sales of sports utility vehicles (or four-wheel drive vehicles). Despite the slide in passenger vehicle sales in February, it was clear that demand for SUVs was the main driver, scaling new heights. In fact just over one in three new vehicles sold in Australia is a SUV.

·       In terms of the weekly consumer sentiment reading it is pretty clear that the reduction in volatility and improvement in global markets is having the desired impact, with confidence levels rising in the past week.

·       On Thursday the Bureau of Statistics (ABS) releases the February job market data. The ABS data now seems to be released a week later than was the norm in 2015. The additional week should provide the ABS with more time to ensure the quality of the data and give investors more confidence in the figures. The job advertisement data has shown signs of consolidating in the past three months and investors would be looking to see how it plays out in terms of unemployment. We expect that jobs lifted by 20,000 in February after falling by 7,900 in January. And the jobless rate may is expected to remain steady at 6 per cent courtesy of no change in the participation rate.

·       Also on Thursday, Reserve Bank Assistant Governor Debelle gives a morning address at the FX Week Australia conference at 9.05am in Sydney. And the Reserve Bank will release its quarterly Bulletin, a publication that contains topical articles on the economy

·       On Friday the Reserve Bank Head of Financial Stability Department, Luci Ellis, provides an address to the Financial Risk Day 2016 conference in Sydney at 9.30 am.

US Federal Reserve meeting to dominate headlines

·       Turning attention to the US, a barrage of economic data is set for release, however the key focus for investors will be the interest rate decision mid-week by the Federal Open Market Committee (FOMC).

·       The week kicks off on Monday with the release of the influential New York Empire State manufacturing survey. Also on the same day the National Association of Home Builders index for March is to be released along with retail sales, capital flows and the monthly producer prices index. Economists expect that core business inflation remains contained, while retail sales may have risen by 0.1 per cent in February after a 0.2 per cent lift in January. Excluding autos, sales may have lifted by 0.1 per cent. A modest 0.1 per cent fall in business inventories is expected while the NAHB index is tipped to lift from 58 to 59.

·       On Tuesday, data on housing starts will be issued alongside building permits for February. In addition the Federal Reserve also commences a two-day meeting (announcement on Thursday morning Sydney time 6.00am AEDT). The number of home starts unexpectedly fell by 3.8 per cent in January dampened by the bad weather. And given the improvement in weather conditions, economists tip a rebound in starts of around 4 per cent in February. Building starts are expected to be flat after a 0.2 per cent fall in January.

·       Also on Tuesday data on consumer prices is issued alongside figures on industrial production. The core rate of consumer price inflation (excludes food and energy) is tipped to have lifted by 0.2 per cent in February to be up 2.2 per cent over the year. For many, this indicates that the Federal Reserve doesn’t need to be in any rush in lifting interest rates.

·       The Federal Reserve meeting will be important because new forecasts will be released and the Fed chair, Janet Yellen, will hold a news conference. She will have the opportunity to address the broad array of views amongst Fed members about the timing of future rate hikes. We expect the Fed to discuss the need for higher commodity prices to justify a further lift in interest rates by around mid-year.

·       On Thursday, the current account deficit for the December quarter, together with the regular US weekly data on new claims for unemployment insurance (jobless claims), the influential Philadelphia Federal Reserve (Philly Fed) survey and the leading index. Economists expect a mixed result across all the indicators.

·       On Friday is the “preliminary” reading of consumer sentiment for March, and similar to Australia, a modest improvement is expected.

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