The European debt crisis continues to rage, and the sanguinity surrounding the domestic economy recovery is slowly and steadily giving way to doubts and apprehensions. Added to this, developing economies such as China and India, which were relatively shielded from the vagaries of the downturn that hit the global economies in 2008, have begun to face the heat. China reported last week that its economic growth slowed to its weakest pace in three years in the second quarter.
Chinese premier Wen Jiabao has reportedly stated that the momentum for a recovery in economic growth isn' t yet in place and that difficulties may persist for a while. Joining ranks with their developed counterparts, developing countries are also embarking on policy measures to reinvigorate growth. Brazil announced a 50 basis point cut in its key rate to a record low 8 percent and South Korea's central bank also unexpectedly lowered rates last week.
That said, the minutes of the June FOMC meeting released last week revealed that not many members were in favor of additional quantitative easing. Most felt that additional easing is needed only if economy loses further momentum. In fact, Jeffrey Lacker is concerned about the monetary policy being too accommodative.
Among the other domestic data released last week, outstanding consumer credit rose a better than expected $17.1 billion or 8 percent in May. Revolving credit tied to credit cards rose $8 billion compared to a $9.1 billion increase in non-revolving credit tied to auto loans.
Meanwhile, the U.S. trade balance narrowed to $48.7 billion in May from $50.6 billion in April. Exports rose merely 0.2 percent, rebounding from a 0.9 percent decline. Meanwhile, in real terms, exports climbed 1 percent. Imports declined 0.7 percent from the month-ago period.
A consumer sentiment reading compiled by Reuters and the University of Michigan showed that consumer sentiment fell to 72 in July from 73.2 in June, with the mid-month revealing that sentiment is languishing at a 7-month low.
The Commerce Department's wholesale inventories report showed that wholesale inventories rose 0.3 percent month-over-month in May, in line with expectations. Wholesale sales fell 0.8 percent. On a year-over-year basis, wholesale inventories rose 6.4 percent compared to a 5.7 percent increase in wholesale sales. The inventories to sales ratio came in at 1.18 in May compared to 1.17 in the year-ago period.
The unfolding week provides ample data points to verify the resilience of the economy to withstand both domestic and overseas shocks. The Commerce Department's retail sales report for June, the July manufacturing surveys of the New York Federal Reserve and the Philadelphia Federal Reserve, the weekly jobless claims report and the Federal Reserve's industrial production report for June are among the closely watched reports of the week.
Some key housing reports, including the Commerce Department's housing starts report for June, the National Association of Realtors' existing home sales report for June and the National Association of Realtors' housing market index for July are also due for the week. The spotlight is also likely to be on Federal Reserve Chairman Ben Bernanke's Congressional testimony and the Federal Reserve's Beige Book.
The business inventories report for May, the Labor Department's consumer price report for June, the Conference Board's leading economic indicators index for June and announcements concerning the Treasury auction of 2-year, 5-year and 7-year notes round up the economic events of the week.
Industrial output may have seen a rebound in June, thanks to higher energy and utility output. However, a reading below '50' for the headline manufacturing index of the ISM's national manufacturing survey does not bode well for manufacturing output.
Most economists expect housing starts to have increased in June, as builder sentiment has improved and building permits rose in May. BMO Capital Markets notes that the construction sector has received some boost from leaner inventories and firmer demand, especially from investors seeking rental properties. Going by an increase in the pending home sales index for May, existing home sales may have also risen.
Retail sales of food and retail companies with one or more establishments that sell merchandise and associated services to final consumers are slated to be released at 8:30 am ET. For June, economists estimate a 0.2 percent increase in retail sales and a 0.1 percent increase in retail sales that exclude autos. On the other hand, sales, excluding autos and gasoline, may have risen 0.3 percent.
U.S. retail sales edged down 0.2 percent month-over-month in May, marking the second straight month of decline. Sales by building/garden equipment stores, gasoline stations and food stores declined, while auto sales continued to be healthy. Excluding autos, sales were down 0.4 percent, the steepest drop since May 2010. Core sales, excluding autos, gasoline and building materials, rose only 0.1 percent.
The results of the New York Federal Reserve's empire state manufacturing survey, which elicits response from 200 manufacturing executives in New York state, is slated to be released at 8:30 am ET. The headline general business conditions index for July is expected to come in at 4.50.
The general business conditions index declined to 2.3 in June from 12.5 in May. The new orders index declined 6 points to 2.2 and the order backlogs index remained in negative territory for the 12th straight month. The employment index slipped 7 points to 12.4 and the average workweek index declined 9 points to 3.1. The 6-month outlook index also declined, dropping to 23.1 from 29.3 in May.
The Commerce Department is scheduled to release its business inventories report for April at 10 am ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.3 percent increase in business inventories for the month.
Business inventories rose 0.4 percent month-over-month in April, with inventories up 6 percent year-over-year. Meanwhile, business sales rose 0.2 percent from the previous month and were up 5.4 percent from the year-ago period. The business inventories to sales ratio was at 1.26 in April compared to 1.25 in the year-ago period.
The consumer price index for May is scheduled to be released at 8:30 am ET. The index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Economists expect the headline index to have remained unchanged compared to a 0.2 percent increase in core inflation.
Consumer prices fell by a slightly steeper than expected 0.3 percent month-over-month in May, marking the biggest drop since December 2008. Much of the decline was due to a 4.3 percent drop in energy prices. Excluding food and energy prices, consumer prices rose 0.2 percent, in line with expectations.
The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for January at 9 am ET.
The Federal Reserve's industrial production report is due out at 9:15 am ET. Economists estimate a 0.3 percent increase in the industrial production performance for June, while manufacturing output growth is estimated to have increased by 0.2 percent. Capacity utilization may have edged up by 0.2 percentage points to 79.2 percent.
U.S. industrial output fell 0.1 percent month-over-month in May, with manufacturing output declining by 0.4 percent, while mining and utility output rose 0.9 percent and 0.8 percent, respectively. Motor vehicles and parts production declined 1.4 percent, marking the first drop since November. Excluding motor vehicles and parts, manufacturing output was flat. Output of business equipment rose 0.3 percent, the thirteenth straight month of increase. Capacity utilization edged down 0.1 percentage points to 79 percent.
The National Association of Homebuilders is scheduled to release the results of its June survey on homebuilders' confidence at 10 am ET. The consensus estimates call for the index to increase to 30.
The housing market index rose to a 5-year high of 29 in June from a downwardly revised reading of 28 in May. The present sales conditions index rose 2 points to 32, but the sales expectations index and the index measuring prospective buyer traffic remained unchanged.
Federal Reserve Chairman Ben Bernanke is scheduled to speak before the Senate Banking Committee to give his semi-annual monetary policy testimony at 10 am ET.
A report on housing starts, which refer to the number of privately-owned new homes on which construction has been started over some period, and building permits, which are the number of permits issued for new housing units each month, is slated to be released at 8:30 am ET. Economists estimate housing starts for June to come in at 745,000, while building permits are expected to have slipped to 775,000.
Housing starts came in at a seasonally adjusted annual rate of 708,000 in May, while April's starts were upwardly revised by 27,000 to 744,000, the best reading since October 2008. Single family starts rose to a 5-month high of 516,000, while the volatile multi-family starts fell by 52,000. Building permits rose to 780,000, the highest level since September 2008.
Bernanke will testify before the House Financial Services Committee at 10 am ET.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended July 6th at 10:30 AM ET.
Crude oil stockpiles fell by 4.7 million barrels to 378.2 million barrels in the week ended July 7th. Inventories were above the upper limit of the average limit.
Gasoline inventories rose by 2.8 million barrels and were in the lower limit of the average range. Distillate inventories also increased, rising by 3.1 million barrels. Inventories remained below the lower limit of the average range. Refinery capacity utilization averaged 92.3 percent over the four weeks ended July 6th compared to 92.1 percent over the four weeks ended July 92.1 percent.
The Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.
The Labor Department is due to release its customary jobless claims report for the week ended July 13th at 8:30 AM ET. Economists expect claims to edge up to 365,000 from 350,000 in the previous week.
Jobless claims fell by more than expected in the week ended July 6th, although the decline was due to the distortions caused by fewer summer auto plant shutdowns. The number of individuals filing for unemployment benefits fell by 14,000 to 350,000 and the four-week average slid 9,750 to 376,500. Continuing claims for the week ended June 30th fell by 14,000 to 3.304 million.
The National Association of Realtors is scheduled to release its report on existing home sales for June at 10 am ET. Economists estimate existing home sales of 4.65 million for the month.
In May, existing home sales fell 1.5 percent month-over-month to a seasonally adjusted annual rate of 4.55 million units. Single-family home sales declined 1 percent, while condominiums and co-ops sales fell 5.7 percent. Inventories as measured by the months of supply rose to 6.6 months from 6.5 months in April. The median price of an existing home rose 7.9 percent year-over-year and were 5.1 percent higher compared to the previous month. First time buyers accounted for 34 percent of the total.
The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 am ET. Economists expect the diffusion index of current activity to show a reading of -8 for July.
The manufacturing index fell to -16.6 from -5.8 in May. The new orders index declined 17.6 points2' to -18.8 and the order backlogs index moved down by 6.9 points to -16.3. The employment indexes were mixed, with the number of employees index rising 3.1 points to 1.8, while the average workweek index declined to -19.1 from -5.4. The inventories index slumped 13.2 points to -8.7. However, the 6-month outlook index rose 4.5 points to 19.5.
The Conference Board is scheduled to release a report on the U.S. leading economic indicators index for June at 10 am ET. The consensus estimate calls for a 0.1 percent drop in the index.
In May, the leading economic indicators index rose 0.3 percent month-over-month following a 0.1 percent drop in April. The coincident index was up 0.2 percent compared to a 0.3 percent increase in the lagging economic index.
There are no important economic reports due to be released on Friday.
by RTT Staff Writer
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