By Theresa Sheehan

PRINCETON (SMRA) – Although there is a variety of economic data
over the course of the week-ahead, markets’ attention will probably most
focused on the Federal Open Market Committee meeting Tuesday and
Wednesday.

The two-day FOMC meeting in June is normally the preparatory
meeting for the Chairman’s semiannual monetary policy testimony in July.
There will be updates of the quarterly forecasts, and a look at the next
Senior Loan Officer Survey. However, it is unlikely that any depth in
the Committee’s discussion of these items will show through in the
routine statement.

We anticipate wording consistent with the April 27-28 language,
taking into account events over the inter-meeting period. The “extended
period” formula will probably be unaltered, as should Kansas City
Federal Reserve President Thomas Hoenig’s dissent to its use. Details
will have to wait until the meeting minutes are released on July 14.

There are no other major central bank meetings on the calendar for
next week or two, and Fed officials will be out of the public eye until
the June 28 week.

The drop in housing starts in May could be attributed to two main
factors: the end of the homebuyer tax credit program with its April 30
deadline for contracts, and the flooding in several southern states that
prevented construction starts.

These two factors will be visible in the data on sales of existing
homes mid-morning Tuesday and sales of new single-family homes at
mid-morning Wednesday.

Both are likely to register significant declines as many potential
buyers moved up their purchase plans before the end of April to benefit
from the tax credit. The flooding in Tennessee and neighboring states
will mostly be seen on a regional basis in the South.

The FHFA House Price Index for April is also scheduled for
mid-morning Tuesday, and precedes the private data in the
S&P/Case-Shiller Home Price Index by a week. Home prices likely
struggled to gain any ground in April as sellers lowered prices to
clinch sales before the April 30 deadline, and to ensure that banks’
appraisals would not hamper issuing mortgages. Nonetheless, prices have
firmed from the lows of the housing correction and are more stable.

The manufacturing surveys from the New York and Philadelphia
Federal Reserve Banks indicated that activity in the factory sector has
leveled or tapered off in June, but continued to grow. The Richmond
Fed’s manufacturing survey Tuesday should be of a piece with that. The
general activity index for this Fed District was the soonest to show
signs of recovery, and has been quite strong the last few months.

The Kansas City Fed’s manufacturing survey for June is expected at
late in the morning Thursday. It does not have a general activity index,
and is not closely watched.

The report on new orders for durable goods in May is scheduled for
Thursday morning. The increase in April was on a surprisingly strong
gain in civilian aircraft, but that is unlikely to repeat in May. Boeing
reported low numbers of orders in the month. Transportation orders
should generally be softer.

The Federal Reserve will release annual revisions to its industrial
production and capacity utilization data on Friday. The time is not
announced, but it will likely be in the morning.

The second estimate (final) of first quarter GDP data will be
released Friday morning. At this point the second quarter is already
well advanced, and markets will give this report little attention unless
there is a surprisingly large revision where none is currently
anticipated.

Initial jobless claims for the week ended May 19 are published
Thursday morning, and is generally expected to resume its slow march
lower after an uptick in the May 12 week. There may be some revision to
the prior week’s data, which in turn may slightly alter the view of the
survey comparison week of June from May.

Mass layoff activity in May is set release Thursday, and probably
will only extend the perception that widespread layoffs are now past.
The government component is anticipated be the most effected by layoff
activity.

The final Reuters/University of Michigan Consumer Sentiment Index
for June is out mid-morning Friday. Signs of increases in consumer
confidence are growing, although it could easily be derailed by another
shock. The preliminary index reading was at 75.5 in June, up from 73.6
in May. It will probably not be much revised.

The G8 leaders will meet in Muskoka, Canada on June 25-26 for their
annual summit, to be immediately followed by the G20 Summit on June
26-27 in Toronto. The annual summit of leaders tends to be more
political and diffuse in topics than the ministerial meetings that have
already covered more specific issues like financial reform and global
imbalances.

** Stone & McCarthy Research Associates **

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