@ Wall Street
This week, we saw further evidence of a mild "de-coupling" of the US economy from the Eurozone crisis. As long as Europe doesn?t fall into a "Lehman moment" of disorderly defaults and exits from the monetary union, the US economy should continue to expand. This outcome appeared more likely this week as Greece moved closer to an agreement with private bond holders over the size of the ?voluntary? haircut on its debt. Meanwhile, China´s Q4 GDP result suggested a soft landing is taking place, making the international backdrop even more benign from the US? point of view. In any event, US markets were more interested in domestic developments, particularly positive employment and manufacturing data and generally upbeat earnings results from S&P500 companies (major banks notwithstanding). Double-dip recession fears are shrinking in the rear-view mirror as it becomes increasingly evident that the US recovery will endure, if not necessarily flourish.
The data this week indicated an ongoing recovery with a subdued inflation outlook and a mixed reading on housing. Manufacturing production staged a strong rebound in December after a pause in November and early readings from regional indices suggest ongoing momentum this month. Initial unemployment claims fell to their lowest level since prior to the Lehman collapse, in a sign that companies are slowing the pace of layoffs. The CPI was flat in December, thanks to declining gasoline prices, with only a minor uptick in the core. Despite a recent firming in energy, inflation is expected to be much more subdued this year compared to last, but a fight with Iran is a wild card. Home builder optimism showed signs of life this month, but they aren?t taking anything for granted, and remain reluctant to expand the inventory of unsold homes. Single-family housing starts inched higher in December but remain close to historic lows.
The data this coming week (January 23-27) brings updates on new home sales, durable goods orders, and consumer sentiment. But the biggest item will be an initial reading on Q4 GDP growth. GDP growth likely accelerated last quarter thanks to inventory re-building and a pickup in consumer spending. Business capital spending, however, likely slowed, while government spending continued to contract. Sales of new homes likely inched up to 320K in December, but in the long-view, this is just bouncing around a bottom. Outside of aircraft, durable goods orders probably had a mediocre month in December with only tepid gains in core capital goods. Finally, a late-January update to the Reuters/Michigan Consumer Sentiment Index will ratify the boost we saw earlier in the month.
@ The White House
In the morning, the President and the Vice President will receive the Presidential Daily Briefing.
In the afternoon, the President will welcome the six-time Stanley Cup Champion Boston Bruins to the White House to honor the team and their 2011 Stanley Cup victory.
Continuing his tradition of recognizing sports teams for their work off the ice, President Obama will highlight the Boston Bruins Foundation which has raised and donated more than $7 million to various charitable organizations in the six New England states. This event in the East Room is open press.
