WHAT: Institute for Supply Management Non-Manufacturing Business Index, March WHEN: Tuesday 1000 EDT (1400 GMT) FORECASTS Reuters IFR Previous Non-Mfg Index 59.5 59.9 59.7 IFR COMMENTARY: "IFR looks for the March ISM Non-Manufacturing index to see a rise of just two-tenths of a point, to 59.9. That would edge out the prior month's headline for the strongest since August 2005, but, given that we already have the March BLS employment report in hand, the ISM NMI release is likely to be met with a yawn this month.
We are guessing that most of the component indices will fluctuate not far from last month's prints, but that the employment index will scratch out a little bit faster growth in line with growing strength in the private services payrolls trend. In fact, March's 199k gain was handily the strongest since November 2006. The 15k natural resources / mining gain was the strongest since 1989, though it could well revert.
In general, we look for slowly growing strength in services, as the sector appears now to be on a convincingly self-sustaining recovery path. It is not yet quick enough to begin eating into unemployment at a rapid pace, and not invulnerable to possible upcoming shocks (say, another flareup of European fiscal troubles), but for now, at least, the track looks solid." ----------------- WHAT: Federal Open Market Committee minutes from March 15 meeting WHEN: Tuesday 1400 EDT (1800 GMT) NO FORECASTS IFR COMMENTARY: "The minutes from the March 15 FOMC meeting should confirm a less dovish mindset. Even the doves now appear comfortable that the economic recovery is self-sustaining, which should leave the main debate on the inflation picture given a recent increase in upside pressure. While the meeting's statement expressed a view that energy commodity price effects are likely to be transitory, some discussion on potential exit strategies is likely to be visible.
The minutes of the January 25-26 meeting stated that members agreed that its statement needed only small changes to reflect the improved near-term outlook and to make it clear that the policy decision reflected a continuation of QE2. The March 15 statement saw the statement much more significantly changed, suggesting the Fed felt a need to convey more than just an improved economic outlook. Many of the caveats to a positive growth outlook were removed, while upward pressure on prices from energy and other commodities was noted.
Following the meeting we have seen some hawkish comments coming not only from recognized hawks such as Fisher and Plosser, but also the more flexible but non-voting Bullard, who suggested the $600 bln QE2 program could be trimmed by $100 bln. Plosser advocated an exit strategy of shrinking the balance sheet and tightening rates concurrently, while Bullard preferred to shrink the balance sheet first, a sign that members are considering how to implement an exit strategy. While the New York Fed has stressed that its open market operartions to drain reserves are only part of prudent operational readiness tests, the size of their reverse RPs has been larger than in previous tests. The majority preference still appears to be to let QE2 run its planned course to June 30, and the doves continue to note that economic slack is an inflation restraint. Nevertheless, the debate is whether to trim QE2 rather than whether or not to extend it, and the upside risks on inflation have risen.
This meeting, unlike that of January 25-26, had above-consensus data from even the most recent core CPI and PPI releases to note. Even if most Committee members still feel underlying inflationary pressures remain contained, some discussion of how to respond should they accelerate more quickly than expected is likely to have been thought prudent. The now ubiquitous 'extended period' reference, as a potential obstacle to timely action, could also have received some attention, though it was maintained on March 15, perhaps to avoid accelerating market expectations too far.
More dovish FOMC members (e.g., Evans) have made comments downplaying the inflationary risks, but they have expressed increased confidence in the growth outlook, and while still dissatisfied with the likely pace at which unemployment will fall, February's payroll growth (+222k private) meant that this meeting came with a more positive picture on job creation than the previous one. This increased confidence saw the statement produce a notable absence of mentions of downside growth risks due to rising commodity prices and events in the Middle East and Japan. This optimism may not be entirely justified, with the Q1 GDP outlook now looking significantly less positive to us than we had thought at the start of the quarter. However, at the time of the March 15 meeting, Fed officials appeared in agreement that the recovery maintained its momentum despite these fresh hurdles. This, coupled with increased upside inflationary risks, should see these minutes produce a less dovish tone."
For more Reuters consensus forecasts for U.S. indicators, double-click on [ECI/US]
-- by Theodore Littleton and David Sloan of IFR Markets, a unit of Thomson Reuters.
IFR Preview-major US data for release April 5
