By Theresa Sheehan

PRINCETON (SMRA) – The week ahead has a variety of economic
data on the calendar, but it is probably the first estimate of GDP for
the fourth quarter 2010 that will get the most attention. Fed
policymakers hold a two-day meeting to update their forecasts and help
Chairman Ben Bernanke prepare for his upcoming semiannual monetary
policy testimony.

The Economic Data

The preliminary estimate for GDP in the fourth quarter 2010 at 8:30
ET on Friday has the potential for some surprises. Analysts have been
upping their forecasts after the data on international trade showed a
narrower deficit in October and November. Consumer spending has been
solid, particularly for durable goods like automobiles. However,
inventory gains have tapered off, and will provide less support for
growth.

The remaining data for the week focuses mainly on manufacturing,
consumer confidence, and housing.

New orders for durable goods for December at 8:30 ET on Thursday
should reflect a rise in orders for civilian aircraft and increased
demand for motor vehicles, as well as more broad-based gains from other
components as the factory sector picked up some steam.

The Richmond Fed’s Manufacturing Survey for January at 10:00 ET on
Tuesday is the third of the closely-watched District Bank measures of
manufacturing conditions. The New York and Philadelphia reports have
already suggested that the factory sector continued to expand early in
the new year. The Richmond District tends to be the strongest of these,
and should be of a piece with the other surveys. The Kansas City Fed
will release its survey of manufacturing at 11:00 ET on Thursday.

The Chicago Fed’s National Activity Index for January at 8:30 ET on
Thursday will mainly be of interest to analysts. It has been signaling
some mild increases in growth.

Consumer confidence may continue to decline a little as the end of
January approaches. The weekly ABC Consumer Comfort Index has shown that
a brief burst of less pessimism around mid-month as given way to worries
about gasoline and food prices. The preliminary Reuters/University of
Michigan Consumer Sentiment Index for January fell to 72.7 from 74.5 in
December, and is likely to be revised down slightly when the final index
is issued at 9:55 ET on Friday.

The Conference Board’s Consumer Confidence Index for January
probably will not fall much below the 45.8 reported for December, but
could remain rangebound around the mid-40’s as it has for the last six
months.

Two reports on home values for November will be released on
Tuesday. The popular S&P/Case-Shiller Home Price Index is at 9:00 ET,
and the FHFA House Price Index is at 10:00 ET. Sluggish sales and higher
mortgage interest rates probably mean another month of soft prices for
homes.

Sales of new single-family homes for December will be reported at
10:00 ET on Wednesday. With abundant supplies of lower-priced existing
homes on the market, sales of new homes have languished. Buyers have
also shifted to smaller homes, and builders are moving to accommodate
them.

The NAR’s Pending Home Sales Index (PHSI) for December at 10:00 ET
on Thursday could indicate that some buyers are moving to take advantage
of low prices and/or entering the housing market before mortgage rates
increase further. However, sales activity will probably still look quite
sluggish.

Levels of initial jobless claims for the week ended January 22 at
8:30 ET should be on the decline again after the peak period of early
January when retailers lay off seasonal workers. The underlying trend in
new claims should be more visible, and consistent with persistent
improvements in the labor market.

Some modest gains in wages and salaries, and increases in medical
care will probably push the fourth quarter Employment Cost Index (ECI)
somewhat higher than recent quarters when the data is released at 8:30
ET on Friday. A decent holiday sales season probably means that
incentive pay will be up, as well as increased hiring in both the
services and factory sectors.

Federal Reserve and Other Central Bank Meetings

The FOMC meets on Tuesday and Wednesday, the first meeting of the
Committee in 2011 and the one at which the next rotation of FOMC voters
will take place. The Committee is expected to maintain the current
policy of Large Scale Asset Purchases by a majority vote. The FOMC
meeting should be preceded by an expected meeting of the Board of
Governors on Monday to discuss the discount rate.

The governors of the Bank of Japan will meet on Monday and Tuesday.
The Bank has an easing bias, although no action is expected at this
session. The Reserve Bank of New Zealand will make its regular policy
announcement on January 27, which will be late in the afternoon on
Wednesday for the US. The Bank has announced that policy is on hold for
now.

Treasury Coupon Auctions

The Treasury will offer no new coupons until the quarterly
refunding on Wednesday, February 2. This will see the auction of new 2-,
5-, and 7-year notes on Tuesday through Thursday, in that order. These
will all settle on January 31, along with the 10-year TIPS note
reopening.

Earnings Season

Fourth quarter earnings season continues with a packed calendar.
Many of the reports are in the transportation and energy sector, as well
as for pharmaceuticals and other large manufacturing companies. There
are still a few major financial sector firms to report during the week.

The pace of release of fourth quarter earnings data picks up in the
week. A number of major financial firms are on the calendar, as well as
some other industry giants and market favorites.

On Monday, there are reports from American Express, CSX,
Halliburton, Kimberly-Clark, McDonald’s, Merck, Raytheon, Robert Half,
Sealed Air, and Texas Instruments.

On Tuesday, reports are scheduled from 3M, A.O. Smith, Baker
Hughes, BlackRock, Boston Properties, DuPont, Harley-Davidson, Johnson &
Johnson, Norfolk Southern, Seimens, Taiwan Semiconductor, The Travelers,
USX, Verizon, and Yahoo!.

On Wednesday, the main reports are from Abbott, AmeriGas, ADP,
ConocoPhillips, Eastman Kodak, General Dynamics, Netflix, Occidental
Petroleum, Piper Jaffray, Qualcomm, Ryland Group, Starbucks, Boeing, US
Airways, Valero Energy, and Xerox.

Thursday’s report include Altria, AT&T, Bristol-Myers Squibb,
Caterpillar, Chubb, Colgate-Palmolive, Eli Lilly, Lockheed Martin,
Microsoft, Motorola, Nokia, Proctor & Gamble, Stanley Black & Decker,
and Time Warner Cable.

On Friday, the major reports are from Chevron and Honeywell.

** Stone & McCarthy Research Associates **

[TOPICS: M$$FI$,M$U$$$,MAUDS$]