U.S. Durable Goods Orders

1. Japanese Workers' Household Spending
2. Japanese National Consumer Prices
3. Japanese Industrial Production

U.S. Durable Goods Orders (SEP) (12:30 GMT; 08:30 EDT)
Consensus: -1.4%
Previous: 3.4%

Outlook: After posting unexpectedly high gains in August, U.S. durable goods orders are expected to have declined 1.4 percent for the month of September.  Unlike the previous month when Chicago-based Boeing, the world's largest aircraft manufacturer received orders for 90 aircraft, demand for transportation durables has dwindled.  Boeing reports to have received orders for a mere 24 aircraft in September.  Excluding transportation goods, orders in durables across the board are expected to fall at the hands of higher energy prices.  As high energy prices weighed in on the cost of producing steel and, in turn, the price of purchasing steel, steel distributors cut back orders significantly.  The negative effect Hurricanes Katrina and Rita have had on oil prices and durable goods orders, however, is expected to be short-lived.  Rebuilding efforts over the long term should increase demand for durables.  Additionally, demand for computers, electrical equipment, and machinery continues to rise.  Machinery manufacturers such as Caterpillar Inc. are experiencing heavy backlogs on orders and are utilizing their plants to capacity to fill these orders.

Previous: In August, surging sales in the U.S. left many business with exhausted inventories.  To replenish these inventories, businesses placed large orders to restock bare shelves and, as a result, gains in durable goods orders came in considerably higher than the 0.7 percent predicted with a 3.4 percent rise.  This was a remarkable recovery from the previous month's decline, which was the largest decrease in 18 months.  Aircraft and computer orders were the largest contributors to the overall gain in durable goods orders.  Ordinarily, Boeing averages about 20 new orders for its airplanes in a month.  In August, the aircraft manufacturer received orders for 90 new aircraft.  Similarly, orders for computers rose at a dramatic rate of 11 percent.  Many economists feel that the surprising growth in durable goods orders in August was a reflection of the U.S. economy's underlying strength before Hurricanes Katrina and Rita. 

Japanese Workers' Household Spending (SEP) (23:30 GMT; 19:30 EDT)
Consensus:  0.5% (MoM); 0.1% (YoY)
Previous:  3.2% (MoM); -1.3% (YoY)

Outlook: Although spending in households headed by a salaried worker is expected to continue to grow in Japan, the rate of that growth is likely to decline in September.  The decline in the rate of spending growth is likely a result of a recent drop in consumer confidence.  In September, consumer confidence fell to an index value of 45.5 from 48.4 in August as Japanese households are more reluctant to part with their cash in the wake of growing energy prices.  Because the outlook for wage growth in Japan is for no change, Japanese will have less disposable income to spend on goods.  Additionally contributing to slower growth in consumer expenditures, demand for automobiles fell over the period.  Despite the decline in growth, however, economies predict the Japanese economy will continue its recovery at a moderate pace as strong corporate expenditures are likely to spill over into personal spending patterns in coming months. 

Previous: Increased wages and bonuses coupled with increased employment in Japan led workers' household spending to rise by 3.2 percent in August.  This was the first gain in spending in four months.  Even more noteworthy is the fact that this marked the first time since 1991 that economic growth was spurred by consumer and capital spending as opposed to exports and government expenditures.  The overall trend in consumer spending is exemplified by Aeon's sales, the country's largest retailer.  Aeon has reported a 24.5 percent gain in operating profit in recent months.  A 1.3 percent increase in July wages had much to do with August's increase in spending as did a 3.6 percent increase in summer bonuses.  Although the Japanese economy lost 70,000, the size of the workforce also fell by 120,000 people, resulting in a net decline from 4.4 percent to 4.3 percent in the jobless rate, further lending to consumers spending habits. 

Japanese National Consumer Prices SA (MoM) (SEP) (23:30 GMT; 19:30 EDT)
Consensus: 0.1%
Previous: -0.1%

Outlook:  A consensus among economists hints that much needed price inflation could be finding its way back to the world's second largest economy sooner rather than later.  Economists expect prices advanced 0.1 percent in September from a contraction of 0.1 percent the month before, with core prices unchanged after a 0.1 percent rise in August.  Price growth has changed little over the past three years with the measure, excluding volatile food, moving at most 0.2 percent month over month.  Yearly inflation has eluded the Japanese economy for nearly seven years, yet current factors have placed it on track to see steady gains.  Domestic spending may start contributing to price growth in the near future despite a history that has favored Japanese shoring their spending.  Unemployment fell to an eight year low in June and has hovered around this level ever since.  Wages have also seen steady growth through the year following multiple years of relentless cuts.  Both these factors will carry over to spending habits that are being bombarded by higher energy bills.  Exports may also provide a boost to prices.  Sales of Japanese goods abroad rose 8.8 percent in a recent report which may lend businesses the ability to pass on rising costs for raw materials to a more willing foreign and domestic consumer.

Previous:  Prices for Japanese consumer goods fell 0.1 percent in August following 0.2 percent inflation over the month of July.  On the other hand, core prices fell only 0.1 percent in August from a year ago, the smallest drop since May, suggesting a cross to price growth could be soon to come.  Inflation has been an important issue for the country that has fallen in and out of recession over the past seven years.  Growth in Japan's economy has been tepid at best over the years with demand for goods softening leaving manipulation of monetary policy the only remedy left for officials.  The Bank of Japan responded by lowering the overnight lending rate to zero while simultaneously flooding the market with money.   To even consider raising the benchmark rate back to normal levels, the Bank three prerequisites.  First, prices have to rise or remain unchanged for a few months.  Then the ‘majority' of the board should not foresee deflation return any time soon.  And, finally, economic expansion must be steady and strong.  So far, the economy has met its requirement but the state of inflation has remained murky.  A semi-annual economic outlook released by the central bank of the 31st of October may offer better insight into when inflation and interest rates will begin to see another round of increases.

Japanese Industrial Production (MoM) (SEP P) (23:50 GMT; 19:50 EDT)
Consensus:  2.0%
Previous:  1.1%

Outlook:  A report from the Ministry of Trade and Industry on industrial production is expected to show continued growth of 2.0 percent over the month of September as record exports bolster output.  If the actual read comes in line with expectations, the indicator will be at its highest level in eight months and the first back-to-back gain in 13 months.  Exports rose to 5.9 trillion yen in September, an annual increase of 8.8 percent, as orders for goods such as electronics from aboard kept the manufacturing market active.  Healthy demand from abroad and at home bodes well for the Japanese, as well as global economies.  The economic outlook going into the month of September was uncertain with prices for crude oil rising to a record high $70.80 and creating a hefty burden for Japanese companies that have been unable to pass on rising costs onto an unwavering consumer.  However, rising production and exports will help to stimulate investment by companies and further improve the economy.  A positive showing in production would lend significant support to a slew of other Japanese indicators that are set for release on the same day.  Other indicators that will either align with a healthy economy or detract from it will by indicators of unemployment, personal income and inflation.  Since all these reads are for the month of September, they could act as a litmus test with of how Japan has weathered higher energy prices and if growth and inflation are still on the table.

Previous:  Manufacturers increased production 1.1 percent in August, less than the 1.8 percent predicted but an improvement from the 1.2 percent reduction from the month before.  Healthy improvements to the manufacturing sector has been key in creating jobs, boosting wages and spurring consumer spending for the period.  Demand for Japanese produced goods both at home and abroad led employers to dip into the labor pool, which subsequently shrank to 4.3 percent of the population in August.  Over the same period, optimism among consumers encouraged household spending to jump 3.2 percent, increasing significantly from the 3.5 percent reduction in spending in July.  The improvement to business orders lends itself to optimism concerning the broad health of the economy and further fuels speculation of steady inflation in the near future.  The Bank of Japan has held the benchmark lending rate at 0 percent as a means to stimulate growth.

Richard Lee is a Currency Strategist at FXCM.