This Week's Data Will Help Us Figure Out If The Slowdown Is Really About Weather - Here's Your Complete Preview

Wikimedia CommonsPyrocumulus cloud ice capping over the Mazatzal Wilderness during the Willow Fire near Payson, AZ.

After a long snow-related delay, Federal Reserve Chair Janet Yellen will give the second half of her semi-annual "Humphrey-Hawkins" testimony to Congress. On Thursday at 10:00 a.m. ET, she meets with the Senate Banking Committee.

This week comes with more economic data that's sure to be touched by the unusually harsh winter. But we've been learning more and more that the slow down in economic activity has been about much more than chilly weather.

Here's your Monday Scouting Report:

Top Stories

• It's About More Than Weather (Part II): Yes, weather seems to be behind much of the deterioration in the recent economic data. But that seems to be only a little more than half of the story.
  
  Economists at Goldman Sachs, JP Morgan, and Bank of America Merrill Lynch all published research pointing to other sources of weakness, which included expiring emergency unemployment benefits, lapsing capital expenditure tax credits, and a giveback in the economic strength from the second half of 2013 (e.g. inventory accumulation and export growth).
• Inflation: Surprisingly low inflation has long been one of the more surprising economic stories in recent years. However, the incoming data seems to suggest that we should get ready for this story to change. Owners' equity in real estate continues to trend higher, health care costs seem to be picking up, and labor market dynamics suggest wage growth could heat up sooner than expected.
  

Economic Calendar

• Dallas Fed Manufacturing Index (Mon): Economists estimate this regional activity index slipped to 3.0 from 3.8 a month ago.
• S&P/Case-Shiller Index (Tues): Economists estimate the home prices climbed 0.6% month-over-month in December, or 13.3% year-over-year. "In November, the S&P/Case Shiller 20 City composite index reached a new cycle high at 13.75% YoY," noted Credit Suisse economists. "However, slower growth rates in November and December recorded in the Core Logic home price index suggest S&P/Case Shiller prices stepped down in December. We expect a 0.8% MoM rise, which would leave the YoY rate at 13.6%."
• Consumer Confidence Index (Tues): Economists estimate the Conference Board's measure of sentiment slipped to 80.0 from 80.7 in January. "In February, Washington should not have posed a major concern to consumer confidence," said Bank of America Merrill Lynch economists. "The US House agreed to suspend the debt ceiling, and the FOMC emphasized the pursuit of status quo policy. The consumer, however, may pick up on the trend of weak data such as vehicle sales, payrolls, initial jobless claims, retail sales, and the NAHB index."
• Richmond Fed Manufacturing Index (Tues): Economists estimate this regional activity index fell to 3 from 12 in January.
• New Home Sales (Wed): Economists estimate new home sales fell 3.4% to an annualized rate of 400,000 in January. "Mortgage applications for purchase have declined in four of the past five weeks and builder sentiment plunged to its lowest level since mid-2013," noted Wells Fargo's John Silvia. "Although the weakness was broad-based, current sales saw the steepest decline, plummeting 11 points to 51. Builders noted the drop was due to unusually severe weather conditions, but also cited a shortage in skilled labor and lots. Although weather conditions are expected to be a temporary drag on construction activity, rising construction costs, including a dearth of skilled workers could slow the pace of the housing market recovery."
• Durable Goods Orders (Thurs): Economists estimate 1.5% in January. Nondefense capital goods excluding aircraft (aka core capital goods) is estimated to have slipped by 0.2%. "What matter in this report are core capital goods data, since they feed into our GDP tracking model - core capital goods are nondefense capital goods excluding aircraft and are a good proxy for capex," said Bank of America Merrill Lynch economists. "We expect core capital goods shipments to pull back 1.0% mom as freezing weather slowed down business activity over the month and core orders declined in December. Core orders were likely weak for a second consecutive month in January, down 1.5%."
• Initial Jobless Claims (Thurs): Economists estimate initial claims slipped to 335,000 from 336,000 a week ago. "Initial jobless claims probably edged lower during the Presidents' Day holiday week," said Citi's Peter D'Antonio. "The weather was much fairer during the reference period, but holidays can result in aberrant swings in the data."
• Kansas City Fed Manufacturing Activity (Thurs): Economists estimate this regional activity index fell to 2 in February from 5 in January.
• Q4 GDP (Fri): Economists estimate Q4 GDP was revised down to 2.5% from 3.2%. "Substantial downward adjustments to core ex auto retail sales in November and December, which recast the holiday shopping season as slow instead of strong, pointed to a downward revision to consumption to +2.8% from +3.3%," said Morgan Stanley's Ted Wieseman. "Lower results than BEA assumed for December international trade and wholesale inventories should lower the initially estimated +1.3pp net exports and +0.4pp inventories contributions by 0.2pp each."
• Chicago PMI (Fri): Economists estimate this regional PMI fell to 56.4 in February from 59.6 in January. "We anticipate a substantial drop-off in the Chicago business barometer in February," said Citi's D'Antonio. "The Chicago area is accustomed to nasty winter conditions, so we normally wouldn't look for weather effects in a manufacturing index from that region. However, the region's activity would be affected by a pullback in demand for its products due to weather. In this case, the relative importance of autos means that the dramatic weather-related reduction in vehicle sales in recent months (and the corresponding overstocked lots and reduced orders) could impact this measure of activity."
• Univ. of Michigan Confidence (Fri): Economists estimate the final reading of this sentiment measure came in at 81.2. "On one hand, higher utilities bills during the winter season could cut into discretionary income and weigh on the index," said Nomura economists. "On the other hand, households have been more optimistic about the labor market and their finances."
• Pending Home Sales (Fri): Economists estimate sales increased 1.5% in January. But some are forecasting a decline. "We look for pending home sales, which track signed contracts on single-family homes, condos, and co-ops, to fall 5% m/m in January," said Barclays economists. "One factor in our forecast is MBA applications for purchase, which rose 4.4% on the month after declining 6.1% in December. Buyer traffic in the NAHB home index, however, fell to 40 in January, perhaps driven by adverse weather, and is suggestive of less momentum."

Market Commentary

Last weak, Facebook announced it would acquire text-messaging app WhatsApp for a whopping $19 billion. This was a major-headscratcher for investment analysts trying to justify the price.

Legendary NYU finance professor Aswath Damodaran saw the deal as an opportunity to share some wisdom on the workings of financial markets:

"My experience with markets has been that no one has a monopoly on virtue and good sense and that the hubris that leads to absolute conviction is an invitation for a market take-down. To investors [who] view deals like the WhatsApp acquisition as evidence of irrational exuberance, remember that there are traders who are laughing their way to the bank, with the profits that they have collected from their social media investments. Similarly, for traders who view fundamentals and valuation as games played by eggheads and academics, recognize that mood and momentum may be the dominant factors driving social media companies right now, but markets are fickle and fundamentals will matter (sooner or later)."