Some pick up in the pace of economic activity was evident from the domestic data points for July and August released last week. Retail sales, employment, industrial output all showed notable improvement in July. That said, the manufacturing sector is seen limping, with most regional surveys suggesting contracting activity. Though the specter of a recession is receding, the economy is not clearly out of the woods.
BMO Capital Markets opines that the expansion will strengthen down the road if it continues, even if modestly, through the fiscal and eurozone cliffs. The view is attributed to health returning to household finances and housing markets. According to the firm, personal consumption and residential construction, accounting for nearly three-quarters of economic activity will contribute more meaningfully to the expansion in the years ahead.
Last week, the Commerce Department reported that U.S. retail sales rose 0.8 percent month-over-month, marking the first increase since March. June's decline was downwardly revised to -0.7 percent from -0.5 percent. Auto sales rose 0.8 percent despite unit sales drop in unit sales. Excluding autos, retail sales growth was 0.8 percent. Core retail sales, which strip off autos, gasoline and building materials and are used for GDP calculations, climbed 0.9 percent. All categories saw sales growth in July compared to the previous month.
Producer prices rose 0.3 percent month-over-month in July, while on a year-over-year basis, prices were up an unadjusted 0.5 percent. Core producer prices climbed 0.4 percent, the biggest increase since the start of the year. Food prices were up 0.5 percent but energy prices fell 0.4 percent.
At the same time, U.S. consumer prices remained unchanged in July compared to the previous month. Food prices were up merely 0.1 percent and energy prices declined 0.3 percent, dropping for the fourth straight month. Excluding food and energy, prices were up a milder than expected 0.1 percent.
Manufacturing readings were negative. The New York Federal Reserve's manufacturing report showed that manufacturing activity in the region contracted in August. The headline business conditions index fell to -5.9 in August from 7.4 in July. The new orders index fell 3 points to -5.5, while the order backlogs index rose 3 points. The employment index declined 2 points to 16.5. The 6-month outlook index also declined, dropping 5 points to 15.2, the weakest level since October 2011.
The results of the Philadelphia Federal Reserve's manufacturing survey showed that manufacturing activity in the region continued to contract. The headline manufacturing index improved to -7.1 in August from -12.9 in July. The new orders index rose 1.4 points, yet remained in contraction zone at -5.5, while the order backlogs index declined by 6.7 points to -16.2. The employment index remained little changed at -8.6. The 6-month outlook index fell by about 7 points to 12.5, the lowest level in about a year.
At the same time, industrial output rose 0.6 percent month-over-month in July, marking, the fourth straight month of gains. That said, June's growth was downwardly revised to 0.1 percent from the 0.4 percent growth initially estimated. Manufacturing output climbed 0.5 percent, the same pace as in June, mining output was up 1.2 percent and utilities output was 1.3 percent higher. Reflecting the shorter summer shut downs, motor vehicle and parts output rose 3.3 percent. Capacity utilization edged up 0.4 percentage points to 79.3 percent, the highest in four years.
Housing readings were largely positive. A report released by the National Association of Home Builders showed that builder sentiment improved further in August. The headline index rose 2 points to 37 in August, the highest level since February 2007. The current sales conditions index rose 3 points to 39 and the index measuring prospective buyer traffic also increased 3 points to 31, while the sales expectations index edged up 1 point to 44.
The Commerce Department said housing starts declined 1.1 percent month-over-month to a seasonally adjusted annual rate of 746,000 units. However, the drop was from June's strong reading of 754,000 units. Single-family starts fell 6.5 percent, while the volatile multi-family starts rose 12.4 percent. Building permits rose 6.8 percent to a 4-year high of 812,000 units.
Business inventories at the end of June were up 0.1 percent from the previous month, while business sales slipped 1.1 percent. On a year-over-year basis, business inventories and business sales were up 5 percent and 3 percent, respectively. The business inventories to sales ratio was at 1.29 compared to 1.26 in the year-ago period.
After a week, which saw mostly positive economic data, traders head into another week, which has a few key economic data that could unravel further the strength of the domestic economic recovery. The unfolding week's economic calendar has a trio of housing reports on new home sales, existing home sales and house prices, which have the potential to move the markets.
Traders may also focus on the weekly jobless claims report the Commerce Department's durable goods orders report for July and the minutes of the latest FOMC minutes. Some Fed speeches and announcements concerning the Treasury auction of 2-year, 5-year and 7-year notes round up the economic events of the week.
New home sales may have seen an increase in July, given the optimistic reading of the July present sales conditions index of the NAHB housing market survey. Additionally, economists also see a rebound from June's 8.4 percent drop.
Durable goods order growth may have quickened in July, with transportation equipment orders likely to get a shot in the arm from Boeing's (BA) commercial airplane orders, which jumped to 260 in July from 24 in June. However, most other segments should see weakness due to the global economic uncertainty, stemming from the eurozone debt crisis and China's slowdown.
There are no important economic reports due on Monday.
Atlanta Federal Reserve Bank President Dennis Lockhart is due to speak to the Latin American Chamber of Commerce and World Affairs Council, in Atlanta at 8:45 am ET.
The National Association of Realtors is scheduled to release its report on existing home sales for July at 10 am ET. Economists estimate existing home sales of 4.50 million for the month.
Existing home sales fell 5.4 percent month-over-month in June to a seasonally adjusted annual rate of 4.37 million units. Single-family sales declined 5.1 percent and condominium sales were down 7.8 percent, while sales were down in all the four geographical regions. Inventories measured in absolute terms declined, while the months of supply at the current sales rate rose slightly to 6.6 months from 6.4 months in May. Meanwhile, the median price of an existing home rose 5 percent month-over-month to $189,400.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended August 17th at 10:30 AM ET.
Crude oil stockpiles fell by 3.7 million barrels to 366.2 million barrels in the week ended August 10th. Inventories remained above the upper limit of the average range.
Gasoline stockpiles fell by 2.4 million barrels and were in the lower half of the average range. Meanwhile, distillate inventories rose by 0.7 million barrels yet remained below the lower limit of the average range. Refinery capacity utilization averaged 92.6 percent over the four weeks ended August 10th compared to 92.4 percent over the previous four weeks.
The Federal Reserve is due to release the minutes of its July 31st-August 1st meeting at 2 pm ET.
The Labor Department is due to release its customary jobless claims report for the week ended August 18th at 8:30 AM ET. Economists expect claims to increase to 362,000 from 350,000 in the previous week.
Initial jobless claims rose to a 2-week high of 366,000 in the week ended August 11th, although the 4-week average fell to 363,750.
The Commerce Department is due to release its new home sales report for July at 10 am ET. The consensus estimate calls for new homes sales of 362,000.
U.S. new home sales came in at a seasonally adjusted annual rate of 350,000 in June, down from 382,000 in May. This represented the lowest level since January. Sales plunged the most in the North.
Inventories as measured in terms of the months of supply rose to 4.9 months from 4.5 months in the previous month. The median price of a new home declined 3.2 percent year-over-year and fell 1.9 percent from the previous month.
The Federal House Finance Agency, or FHFA, is set to release its house price index for June at 10 am ET. The index is a weighted, repeat-sales index, which measures average price changes of single-family houses in repeat sales or refinancings on the same properties. Economists expect a 0.6 percent increase in the house price index compared to a 0.3 percent increase in May.
The Commerce Department is set to release its durable goods orders report, which gives the value of orders placed for goods designed to last for more than 3 years, at 8:30 am ET. Economists expect a 1.9 percent increase in durable goods orders for July. Excluding transportation, orders may have risen 0.4 percent.
In June, durable goods orders rose 1.3 percent month-over-month, while transportation equipment orders were up 8 percent. Shipments edged down 0.1 percent and unfilled orders rose 0.3 percent, while inventories rose 0.4 percent.
by RTT Staff Writer
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