The Week Ahead
Vital Signs: Economic Recovery Prospects Improve
With growth prospects improving, businesses appear ready to start contributing to the recoveryâperhaps earlier than in past upturns. Given its austerity of recent years, Corporate America begins this recovery with exceptionally lean inventories, capital budgets, and payrolls. As overall demand begins to turn up, companies will need to gear up quickly.
Extreme corporate caution is also paying off on the bottom line. Based on the Commerce Dept.âs accounting, profits of nonfinancial corporations in the second quarter rose at a 19.3% annual rate from the first quarter. Thatâs an impressive showing in a quarter when GDP shrank 1%. Profit margins also rose last quarter, primarily reflecting deep cost cutting and sharp productivity gains. Nonfinancial companies are coming out of this recession with margins much higher than at the end of the last downturn. Now, with revenues set to pick up in the second half, further gains in profits are a sure bet.
Thatâs important, because profits drive corporate expansion. Already, businesses are gearing up output in response to record low inventories. Thatâs especially true in the auto industry, where a ramp-up in production is expected to account for a big chunk of third-quarter GDP growth. That much is clear from the impressive pickup in manufacturing activity. The Institute for Supply Managementâs index of factory activityâa composite of orders, production, employment, inventories, and delivery timesâjumped to 52.9% in August, the highest level in more than two years.
But its not just inventories. Prospects for capital spending on new equipment are also looking brighter. After four consecutive quarters of declines, July shipments of capital goods, outside of defense and aircraft, began the third quarter well above their second quarter average. Plus, July production of business equipment rose for the first time this year.
Importantly, as businesses expand, they will also begin to add to their payrolls. Overall employment is not yet ready to turn up, but the diminution of monthly job losses means that some companies have stopped shedding workers. Plus, the workweek ticked up in July for the first time in a year. Businesses tend to increase the work hours of existing employees before they start adding to their payrolls. Companies are on a track toward increased hiring perhaps by the end of the year. That will be a crucial turning point for the recoveryâs durability, since any lasting upturn depends critically on consumer spending.
Hereâs the weekly calendar, from Action Economics.
Top Economic Reports Report Date Time For Median Estimate Last Period Consumer Credit ($Billions) Tuesday, Sep. 8 3:00 p.m. July -$3.4 -$10.3 Trade Balance ($Billions) Thursday, Sep. 10 8:30 a.m. July -$27.5 -$27.0 Goods & Services Exports (Bln$) Thursday, Sep. 10 8:30 a.m. July $126.0 $125.8 Goods & Services Imports ($Billions) Thursday, Sep. 10 8:30 a.m. July $153.3 $152.8 Export Price Index Friday, Sep. 11 8:30 a.m. August 0.2% -0.3% Import Price Index Friday, Sep. 11 8:30 a.m. August 1.0% -0.7% Consumer Sentiment Index (Preliminary) Friday, Sep. 11 9:55 a.m. September 66.0 65.7 Wholesale Trade Sales Friday, Sep. 11 10:00 a.m. July 0.3% 0.4% Treasury Budget ($Billions) Friday, Sep. 11 2:00 p.m. August -$168.5 -$182.2
Other Reports and Events Reports/ Events Date Time For ICSC-UBS Store Sales Tuesday, Sep 8 7:45 a.m. Aug. 30-Sep. 5 Johnson Redbook Weekly Store Sales Tuesday, Sep. 8 8:55 a.m. Aug. 30-Sep. 5 NFIB Survey (Small Business) Tuesday, Sep. 8 7:30 a.m. August Mortgage Applications Wednesday, Sep. 9 7:00 a.m. Aug. 30-Sep. 5 Job Openings and Labor Turnover Wednesday, Sep. 9 10:00 a.m. July Beige Book Report (Federal Reserve) Wednesday, Sep. 9 2:00 p.m. August Initial Unemployment Claims Thursday, Sep. 10 8:30 a.m. Aug. 30-Sep. 5