After a spate of weak data points, the past week ushered in some good news for the economy. The economy added more jobs than had been expected, a regional manufacturing survey showed an unexpected increase and the Institute for Supply Management's non-manufacturing sector survey painted a healthy picture of the service sector. That said, the good news wasn't good enough to temper stimulus expectations. Many economists still expect the central bank to act if the economic data over the coming weeks disappoint.
Much to the disappointment of the markets, the Federal Reserve was unmoved by the debt turmoil the European nations are battling and is threatening to stifle the fledgling global economic recovery. The domestic economy is also entangled in a nasty fiscal mess. According to State Street, the fiscal cliff portends a potential recession. Will the economy succumb to these headwinds? The upcoming economic data may provide additional clarity into the economic outlook.
Non-farm payrolls rose a bigger than expected 163,000 in July, marking the biggest increase since February. The figure was boosted by an unusually small number of auto plant closures this year. Average workweek remained unchanged and average hourly earnings edged up merely 0.1 percent compared to the previous month.
The Institute for Supply Management's survey showed that the manufacturing sector continued to contract in July. Of the 18 industries surveyed, only 7 saw growth, while the rest saw contraction. The purchasing managers' index remained almost unchanged at 49.8 in July. The new orders index edged up 0.2 points to 48, while the order backlogs index slipped 1.5 points to 43. The employment index also declined, dropping 4.6 points to 52.
On the other hand, the ISM-Chicago's business barometer unexpectedly rose to 53.7 in July from 52.9 in June. While the new orders index rose 1 point to 52.9 and the order backlogs index climbed 10.6 points, the production index fell by 2.5 points. The employment index declined by 7.1 points to 53.3.
The non-manufacturing index compiled based on the ISM's service sector survey rose to 52.6 in July from 52.1 in June. The business activity index climbed 5.5 points to 57.2 and the new orders index rose a point to 54.3. Meanwhile, the employment index slipped to 49.3 for the first time since December 2011.
A survey by S&P Case-Shiller showed that house prices rose a better than expected 0.91 percent month-over-month in May, while annually, prices were off 0.66 percent.
The personal income and spending report revealed that personal spending remained unchanged compared to the previous month in June. The previous month's reading was downwardly revised to show 0.1 percent drop. Real spending was down 0.1 percent in June. With personal income increasing 0.5 percent, the savings rate rose to 4.4 percent.
Meanwhile, the Conference Board's consumer confidence index rose to 65.9 in July from 62.7 in June. The consensus estimate had called for a small drop. The present situation index edged down 0.4 points to 46.2, while the expectations index rose 5.7 points to 79.1.
Construction spending rose 0.4 percent month-over-month in June, while the May reading was upwardly revised to 1.6 percent from the 0.9 percent growth reported initially. The June spending was aided by a 1.3 percent jump in residential construction but private non-residential construction edged up merely 0.1 percent. Public construction spending remained almost flat.
The FOMC did not announce any radical measures despite the economic struggles. The FOMC statement following the conclusion of the 2-day meeting showed that the Fed's assessment of economic conditions worsened. The August statement acknowledged the deceleration in economic activity when compared to the first half of the year. The Fed's commentary and outlook on other segments such as the job market, inflation and consumer spending were the same as at the previous meeting.
While maintaining interest rates at 0-0.25 percent and voicing its opinion of the need to maintain the extremely accommodative monetary policy environment at least through late 2014, the committee said it will closely watch incoming information on economic and financial developments. This in contrast to the June statement, which said the committee is prepared to take further action.
Relative calm dawns on Main Street, as the unfolding week's calendar has very little market moving economic news. Speeches by Federal Reserve Chairman Ben Bernanke and the weekly jobless claims report are among the market moving economic events of the week.
Traders may also focus on the Federal Reserve's consumer credit report for June and the Commerce Department's trade balance report for June. The Labor Department's import and export price indexes for July, the preliminary second quarter productivity & costs report, the Commerce Department's wholesales inventories report for June, the Treasury Budget for July and Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.
Productivity is expected to have rebounded in the second quarter, although it is expected to stay soft compared to the levels we have witnessed in early 2010. BMO Capital Markets points out the fact that businesses strive to bolster their bottom lines by boosting productivity and extracting other efficiencies in early stages of the economic recovery, as revenue growth remains tepid.
The trade deficit may have narrowed slightly in June, as crude oil prices pulled back sharply. Additionally, aircraft deliveries could have boosted export. Given the weak global economic outlook, near term prospects do not look bright for both exports and imports.
Monday
Bernanke is due to speak via recorded video to the 32nd General Conference of the International Association for Research in Income and Wealth at 9 am ET
Tuesday
Bernanke hosts a town hall meeting with educations from across the country at Board headquarters at 2:30 pm ET.
The U.S. Federal Reserve is scheduled to release its monthly consumer credit report at 3 pm ET. Consumer credit for June is expected to show an increase of $10.3 billion.
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.
Wednesday
The U.S. Labor Department is also scheduled to release its preliminary report on second quarter non-farm productivity and unit labor costs at 8:30 AM. Economists expect productivity to have risen by 1.3 percent, while unit labor costs are expected to have increased by 0.9 percent.
Business sector labor productivity fell at a 0.9 percent annual rate during the first quarter, a downward revision from the 0.5 percent decline initially reported. Most economists had expected the downward revision to the productivity figures for Q1, but most had predicted it would fall by slightly less, 0.8 percent.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended August 3rd at 10:30 am ET.
Crude oil stockpiles fell 6.5 million barrels to 373.6 million barrels in the week ended July 27th, 2012. Nevertheless, inventories remained above the upper limit of the average range.
Gasoline stockpiles fell by 2.2 million barrels, remaining in the lower half of the average range. Distillate inventories declined by 1 million barrels and were below the lower limit of the average range. Refinery capacity utilization averaged 92.5 percent over the four weeks ended July 27th compared to 92.4 percent over the previous four weeks.
Thursday
The trade gap data for June is due out at 8:30 am ET. Economists estimate that the trade gap narrowed to $47.5 billion in the month. The trade gap measures the difference between imports and exports of both tangible goods and services.
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.
The Labor Department is due to release its customary jobless claims report for the week ended August 4th at 8:30 am ET. Economists expect claims to edge up to 367,000 in the recent reporting week.
Initial jobless claims crept up to 365,000 from the previous week's revised figure of 357,000. Economists had expected jobless claims to climb to 370,000 from the 353,000 originally reported for the previous week.
The Commerce Department is due to release its wholesale inventories report at 10 am ET. Economists expect wholesale inventories at the end of June to show a 0.3 percent increase.
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.
Friday
The export & import price indexes for July, which gives the changes in the prices of non-military goods and services traded between the U.S. and the rest of the world, are due out at 8:30 am ET. The consensus estimates call for a 0.2 percent month-over-month decline in import prices and a 0.1 percent decline in export prices.
Import prices tumbled by 2.7 percent in June following a revised 1.2 percent drop in May. Economists had expected prices to fall by 1.9 percent compared to the 1.0 percent decrease originally reported for the previous month.
Export prices also showed a notable decrease, falling by 1.7 percent in June after sliding by 0.4 percent in May. The drop far exceeded economist estimates for a decrease of about 0.2 percent.
The Treasury Budget, a monthly account of the surplus or deficit of the federal government, is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists expect a deficit of $103 billion for July compared to a deficit of $59.7 billion for June.
by RTT Staff Writer
For comments and feedback: editorial@rttnews.com
Economic News