The next set of economic data and testimony by Ben Bernanke could provide some clarity ahead of the Aug. 8 monetary policy meeting. Also on tap: consumer and producer prices, and more
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When will the Fed stop hiking interest rates? That's a big question among economists right now. The hope is that this week's economic data and appearances by Fed Chairman Ben Bernanke will provide some clarity ahead of the Aug. 8 monetary policy meeting.
Chairman Bernanke will take center stage this week as he marches up to Capitol Hill to present the central bank's semi-annual monetary policy report to Congress. His trip could be quite interesting, as the June figures on consumer prices come out July 19 as well. Following the Fed's June 29 monetary policy meeting, the central bank stated that some inflation risks remain due to high levels of resource utilization and elevated energy prices.
Since then, oil prices have risen above $75 per barrel. And the June report on industrial activity, which comes out July 17, is expected to show a healthy increase in output. Indeed, the May trade report showed that stronger economic growth abroad is driving increased demand for goods, especially capital equipment and industrial materials. The rise in June industrial output will likely increase capacity utilization rates as well.
But the central bank also wrote in the June 29 post-meeting statement that it expects economic growth to moderate, helping to "limit inflation pressures over time." One expected source of slower growth is the housing market. In his January testimony before Congress, Bernanke stated that given the surge in housing activity during recent years "[home] prices and construction could decelerate more rapidly than currently seems likely."
That hasn't happened yet, but markets will be looking at the June housing starts data closely to see if the rapidly deteriorating sentiment reflected in the National Association of Home Builders' Housing Market Index is going to translate into a sizeable pullback in new construction.
As Bernanke wraps up his second day of testimony, analysts will be reading the minutes from the June 29 monetary policy meeting. The report will be used to help gauge where other members of the Open Market Committee may stand on an August rate hike. Right now, the consensus view among economists and the financial markets is that the Fed will finally pause, but that view could quickly change.
MEETING OF NOTE Monday, July 17, 3:45 p.m. EDT Federal Reserve Board Governor Randall Kroszner takes part in a roundtable discussion at the National Bureau of Economic Research's Conference on Research in Income and Wealth in Cambridge, Mass.
EMPIRE STATE MANUFACTURING SURVEY Monday, July 17, 8:30 a.m. EDT The New York Federal Reserve Bank releases its July survey of business conditions for manufacturers in the New York Fed district. The consensus among economists is that the index will pull back some from its surprising jump in June.
The index surged to 29 in June, from 12.9 in May and 15.8 in April. At the same time, the new orders, unfilled orders, and shipments indexes improved in June, after rising in May. However, the employment index eased some more, coming in at 5.1 in June, from 9.7 in May, and 17.4 in April. Respondents did feel a little better about the second half of the year. After falling to 30.2 in May, the general business conditions index moved up to 33.7 in June. At the same time, the future expectations indexes for shipments, new orders, and unfilled orders slipped. The index tracking capital spending fell below its long-term average of 24, to 20.
INDUSTRIAL PRODUCTION Monday, July 17, 9:15 a.m. EDT U.S. industrial production is expected to have bounced back in June. Output was off 0.1% in May, after a 0.8% increase in April. Compared to a year ago, overall industrial output expanded 4.3% in May, off slightly from the 4.7% pace in April. Manufacturing is leading the charge, with yearly output up 5.4%.
Within the manufacturing sector, there were signs that investment spending by businesses is holding up in despite the 0.1% monthly fall in May. Output of business equipment did ease 0.2% in May, but that followed an upwardly revised gain in April of 2.1%, from 1.8%. Production of machinery fell, while more computers were produced.
The average operating rate for all industries probably rose as well in June. The utilization rate slipped to 81.7% in May, from 81.9% in April. The utilization rate in manufacturing was 80.5% in May, down from 80.8% in April. The April level was the highest level in nearly six years. Manufacturing output gains continue to outpace the increase in capacity. As a result, the utilization rate will keep rising if demand remains strong.
MEETING OF NOTE Tuesday, July 18, 9 a.m. EDT Federal Reserve Board Governor Kevin Warsh speaks about the growth in corporate cash balances and the state of corporate balance sheets at an American Enterprise Institute event in Washington, D.C.
ICSC-UBS STORE SALES Tuesday, July 18, 7:45 a.m. EDT This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the period ending July 15. Sales fell 0.2% in the week ended July 8, after falling 0.7% in the previous week and slipping 0.4% in the week of June 24. Compared to a year ago, sales edged up to a yearly pace of 3%, from 2.9% for the week ended July 1.
PRODUCER PRICE INDEX Tuesday, July 18, 8:30 a.m. EDT The producer price index for finished goods probably climbed 0.3% in June. The index rose by 0.2% in May, after a 0.9% surge in April. The modest rise in May was the result of a 0.5% fall in the food category and a smaller 0.4% increase in the energy price index. In April, energy prices leaped 4%. Despite the smaller rise in May, the index was up 4.5% from a year ago, from a pace of 4% in April, and 3.5% in March.
Excluding food and energy costs, the rise in wholesale prices should be a little smaller. Core producer prices accelerated in May, with a 0.3% rise, after 0.1% increases in both April and March. Compared to the same period a year ago, core producer prices were up 1.5% in May.
Further up the production pipeline, prices of intermediate and crude goods have been increasing at a faster clip. Compared to the same period a year ago, intermediate goods prices were up 8.9% in May, while crude goods prices rose 8.6%. The gap in the price changes between finished goods and crude and intermediate items shows that producers are generally still having trouble establishing pricing power. The trend becomes even more evident when food and energy goods are removed. The yearly change in core intermediate goods prices was 6.3%, while crude goods prices were up 26.7% from last May.
HOME BUILDERS SURVEY Tuesday, July 18, 1 p.m. EDT The National Association of Home Builders and Wells Fargo bank issue the July survey results. The release updates housing market conditions by measuring builders' assessments of current sales, buyer traffic through model homes, and expected demand.
The June index continued its freefall, hitting 42, from 46 in May, and 51 in April. A reading below 50 indicates that more surveyed builders view conditions as poor than good. The June level is the lowest since April of 1995.
The NAHB is now forecasting a 13% decline in the sales of new homes this year, a sharper decline than the 5% to 6% forecast back in November.
All three components in June dropped. The latest reading for prospective buyer traffic was 29, down from 33 in May. Expectations among builders for sales in the coming six months fell to 50, from 55 in May of 2006 and is down a whopping 30 points from a year ago. The single-family home sales component index was down to 47, from 50 in May, and 77 in June of 2005. INSTINET REDBOOK RESEARCH STORE SALES Tuesday, July 18, 8:55 a.m. EDT This weekly measure of retail activity will report on sales for the second fiscal week of July, ended July 15. During the first fiscal week of July, ended July 8, sales were off 1.7% from the same period in June. For the entire month of June, sales were up 1.8%.
MEETING OF NOTE Wednesday, July 19, 10 a.m. EDT Federal Reserve Board Chairman Ben S. Bernanke delivers his second semi-annual monetary policy report of 2006 to Congress and testifies before the Senate Banking Committee in Washington, D.C.
1 p.m. EDT Federal Reserve Bank of Kansas City President Thomas Hoenig speaks about the U.S. economy and monetary policy at a luncheon in Omaha, Neb.
MORTGAGE APPLICATIONS Wednesday, July 19, 7 a.m. EDT The Mortgage Bankers Association releases its numbers on mortgage application volume for both home buying and refinancing for the week ending July 14. The purchase index increased to 425 in the week ended July 7, from 414.2 for the week of June 30. The refi index slipped to 1400.5, from 1423.9 in the week ended June 30.
The average 30-year fixed-rate mortgage nudged up to 6.81% from 6.8% for the week ended June 30.
Four-week moving average for the purchase index rose to 410.8, from 408.2 in the week ended June 30. The average for the refi index was 1411.6 for the week ended July 7, from 1436.4 for the prior period.
NEW RESIDENTIAL CONSTRUCTION Wednesday, July 19, 8:30 a.m. EDT Housing starts in June are expected to have eased a little. The consensus forecast for June is an annualized rate of 1.9 million. The May level improved to a pace of 1.96 million, after easing to 1.86 million in April.
Through the first five months of 2006, housing starts are off 1.3% compared to the same period a year ago. However, the May level was down 3.8% from a year ago, after the April tally fell 10.4% short of its year ago level.
Before work on a new home can begin, a permit authorizing construction must be obtained. The Census Dept. measure of such permit issuances shows a decline in recent months. In May, the annualized pace was 1.93 million, the smallest monthly level since late 2003. Through May, the number of permits issued was down 2.7% from the same five month period in 2005. The slower pace of permit issuances implies further declines in the level of housing starts in coming months.
CONSUMER PRICE INDEX Wednesday, July 19, 8:30 a.m. EDT Consumer prices for all goods and services in June most likely rose another 0.3% in June. In May, the index climbed 0.4%, after a 0.6% jump in April. Rising energy costs have driven the run-up in inflation. Energy prices rose 2.4%, after a 3.9% surge in April.
Another area where prices crept higher was the cost of shelter. The May measure of owners' equivalent rent increased by 0.6% after consecutive monthly gains of 0.4% in April and March. The index could keep climbing as home prices plateau and rents rise. This trend is due to the process the Labor Dept. uses for tracking how the market price of occupying a home changes. The index accounts for over 23% of the total CPI index.
The rise in consumer prices excluding food and energy is expected to be 0.2%, after three straight monthly increases of 0.3%. The latest acceleration has pushed the yearly rate of core inflation to 2.4%. That's the fastest pace since last March.
REAL EARNINGS Wednesday, July 19, 8:30 a.m. EDT Inflation-adjusted weekly earnings of production workers probably rose 0.5% in June. The Labor Dept.'s employment report showed a solid increase of 0.8% in average weekly earnings, while economists expect a 0.3% rise in the June consumer price index. Real earnings fell 0.7% in May, following a 0.3% rise in April. Compared to the same period a year ago, inflation-adjusted earnings were off 0.2% for May, after a 0.4% rise in April.
MEETING OF NOTE Thursday, July 20, 10 a.m. EDT Federal Reserve Board Chairman Ben S. Bernanke testifies before the House Financial Services Committee in Washington, D.C.
JOBLESS CLAIMS Thursday, July 20, 8:30 a.m. EDT Jobless claims bounced up during the week ended July 8, to 332,000. Some of the rise was attributed to annual auto plant shutdowns. For the week ended July 1, claims were at 313,000, down slightly from 315,000 for the week of June 24.
The jump in claims during the latest period helped push the four-week moving average to 317,250, from 308,500 for the week ended July 1. Continuing jobless claims for the week ended July 1 eased to 2.43 million, from 2.45 million in the prior period.
LEADING INDICATORS Thursday, July 20, 10 a.m. EDT The Conference Board's composite index of leading economic indicators probably posted a small gain in June. In May, the index dropped 0.6%, after a 0.1% gain in April.
The main drags on the index in May came from deterioration in the University of Michigan's consumer expectations index and a rise in jobless claims. Both of those indicators improved in June. There was also a small rise in the average workweek among production workers. At the same time, a decline in stock prices will have a significant negative impact on the June index.
In May, the index was up just 1.7% from a year ago. The yearly pace was 2.4% in April.
PHILADELPHIA FED SURVEY Thursday, July 20, 12 p.m. EDT The Philadelphia Federal Reserve Bank's July factory activity index for the mid-Atlantic region probably edged down a little more, after easing to 13.1 in June, from 14.4 in May. The June survey showed an increase in orders across the region with the new orders index hitting 17.7, from 2.7 in May.
At the same time, the index tracking unfilled orders was virtually unchanged at -2.1, from -2.2 in May. The negative reading implies more manufacturers than not reported a decline in order backlogs. Even with order backlogs slipping, the employment index bounced back to 6.8, from 1.1 in May.
The region's manufacturers continued to feel less positive about prospects for the second half of the year. The general business activity index dropped to 6.8, from to 22.5 in May, and 28.2 in April. Expectations in June for new orders, shipments, and unfilled orders also deteriorated further after all three indexes retreated in May.
FOMC MINUTES Thursday, July 20, 2 p.m. EDT The Federal Reserve will release the minutes of the Open Market Committee meeting held on June 29. The minutes will be examined closely given the increased uncertainly over the Fed's next move at its Aug. 8 monetary policy meeting.
The post-meeting press release in June did contain some differences from the May statement. Investors felt the post-meeting statement was a little less hawkish and meant to give the Fed more flexibility for upcoming monetary policy meetings. The Fed also put more emphasis on the role of fresh economic data in making upcoming monetary policy decisions. The central bank stated that "the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."
MEETING OF NOTE Friday, July 21, 8 a.m. EDT Federal Reserve Bank of Dallas President Richard Fisher speaks at a Leadership Excellence Summit entitled "Ethics, Integrity & Character: Innovative Ways to Develop Your Future Leaders" held by the U.S. Naval Academy Foundation, Academy Leadership, and the Conference Board in Annapolis, Md.
AmSouth Bancorp., Coca-Cola, Johnson & Johnson, KeyCorp, Merrill Lynch, MGIC Investment, National City, New York Times, Sovereign Bancorp, State Street, U.S. Bancorp, United Technologies, Wells Fargo, Yahoo
Wednesday
Abbott Laboratories, Allstate, American Standard, Apple Computer, Bank of America, Bank of New York, CIT Group, Compass Bancshares, CSX, E*TRADE Financial, eBay, First Horizon National, General Dynamics, Genuine Parts, Intel, J.P. Morgan Chase & Co, Johnson Controls¸ Juniper Networks, Kinder Morgan, Mellon Financial, Motorola, Northern Trust, Novellus Systems, PNC Financial Services Group, QUALCOMM, Southwest Airlines, St. Jude Medical, SunTrust, Synovus Financial, Teradyne, Torchmark, Unisys, UnitedHealth Group, VF Corp., Washington Mutual, Yum! Brands
Thursday
Advanced Micro Devices, Ambac Financial Group, Amgen, Baxter International, BB&T, Broadcom, Capital One Financial, Comerica Inc., Compuware, Cooper Industries, D.R. Horton, Danaher, Dow Jones & Company, EMC, Equifax, Fifth Third Bancorp, First Data, Ford Motor, Freescale Semiconductor, Gilead Sciences¸ Golden West Financial, Hershey, Honeywell, Illinois Tool Works, International Game Technology, Leggett & Platt, MedImmune, Microsoft, Noble, PMC-Sierra, Safeway, SLM, Stryker, Textron, Union Pacific, VeriSign, Wachovia, Weatherford International, Wyeth, Xilinx
Friday
Caterpillar, Eli Lilly, Halliburton, Huntington Bancshares, North Fork Bancorp, Nucor, RadioShack, Schlumberger
Mehring is economics writer for BusinessWeek
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