Vital Signs for the Week of June 28


It seems all but official. When the Federal Reserve's Open Market Committee adjourns from its June 29-30 meeting, it's expected to announce a rise in interest rates. The consensus among Fed watchers is for a quarter percentage point increase in the fed funds rate, to 1.25%.

The Fed has been preparing the financial markets for this day ever since the last FOMC meeting. In May, the Committee said that the accommodative level of interest rates could be "removed at a pace that is likely to be measured." Subsequent speeches by Fed officials have backed up that language.

That's one reason why so many economists are forecasting just a 25 basis-point move. If the Fed were to hike by a half point, it could roil investors. The central bank doesn't want to catch the market off guard. Thus, the central bank has gone to great strides in telegraphing its intentions this time around.

Once the Fed does move, many see a steady stream of small 25 basis-point hikes into 2005. The Fed's use of the word "measured" and Chairman Alan Greenspan's consistent view that inflation isn't about to take off have the markets geared for a gradual tightening cycle.

Of course, nothing is set in stone. The current game plan depends on how the economy does in the second half of the year. If the economy heats up further or inflation flares up more than the Fed expects, then the tightening cycle could be accelerated. The Fed does not want to get behind the curve on inflation.

To get a fix on how the central bank views the economy and inflation, Fed watchers will take a close look at the post-meeting press release. In between meetings, economic data such as the employment report, the Institute for Supply Management's business activity indexes, and inflation trackers -- such as the personal consumption expenditures price index in the personal income report -- will be important.

Here's the weekly economic calendar.

EARNINGS REPORTS

Monday, June 28

Bankers Investment Trust, Sonic Corp., and more.

PERSONAL INCOME AND CONSUMER SPENDING

Monday, June 28, 8:30 a.m. EDT

May personal income probably rose by 0.5%, according to the median forecast of economists queried by Action Economics. In April, personal income grew by 0.6%, following a 0.4% gain in March, and increases of 0.5% in both February and January. Income is getting a big boost from the improving labor market. Salaries and wages are up 5.6% from a year ago in April.

Consumer spending on goods and services most likely increased by 0.8% during May, after increasing by 0.3% in April, and 0.5% in March. May was a big month for vehicle sales, which should be a plus for the personal consumption reading. The yearly pace for spending hit 6.5% in April, from 6% in March.

MEETING OF NOTE

Tuesday-Wednesday, June 29-30

The Federal Reserve's Federal Open Market Committee meets for two days to discuss monetary policy. An announcement by the Fed will come on Wednesday around 2:15 p.m. ET.

Economists unanimously expect the FOMC to will raise the federal funds rate. Nearly all those surveyed by Action Economics forecast a 25 basis-point increase, to 1.25%. Since the May 4 meeting, the economy has shown increased vigor, while inflation has picked up. Federal Reserve Chairman Alan Greenspan's preferred gauge of inflation, the personal consumption expenditures price index, jumped to 1.9% from a year ago in April. The latest reading is the highest since March of 2003.

Beyond the anticipated increase in interest rates, economists and Wall Street will be interested in the post-meeting press release to get some insight into whether the Fed's view of the economy and inflation is changing.

EARNINGS REPORTS

AAR Corp., American Greetings, McCormick & Co., and more.

ICSC-UBS STORE SALES

Tuesday, June 29, 7:45 a.m. EDT

This weekly tracking of retail sales, assembled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ending June 26. In the week ended June 19, seasonally adjusted sales rose by 0.1%, following two straight weekly gains of 0.2%, and two consecutive declines of 0.5%.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, June 29, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the fourth fiscal week of June, ended June 26. During the third week of June, sales were up 0.4% compared with the same period in May. In the full month of May, sales stood 0.5% higher when compared with April. Retailers were disappointed with Father's Day sales this year, while others pointed a finger at higher gasoline prices for the slowdown in growth.

CONSUMER CONFIDENCE INDEX

Tuesday, June 29, 10 a.m. EDT

The Conference Board will release its consumer confidence index. Economists surveyed by Action Economics expect the June reading will rise to 95 from May's 93.2 reading. The report also surveys households on whether or not they feel jobs are "plentiful" or "hard to get." Economists will be interested in what consumers think about the current employment situation since job growth, if it slows, could re-emerge as a key issue in the Presidential campaign.

EARNINGS REPORTS

Wednesday, June 30

General Mills, HMV Group, Monsanto, and more.

MORTGAGE APPLICATIONS

Wednesday, June 30, 7 a.m. EDT

The Mortgage Bankers Assn. releases its tally of mortgage applications for both home buying and refinancing for the week ending June 25. In the week ended June 18, the purchase index climbed to 454.5, from 449.5 in the previous week, and 432.2 in the period ended June 4. The latest reading of the four-week moving average nudged up to 449, from 447.8 for the week ended June 11.

The average rate on a conventional 30-year mortgage, according to HSH Assoc., increased to 6.46% for the week of June 18, from 6.42% in the week ended June 11.

The refi index also slipped to 1454.6 in the week ended June 18. In the week ended June 11, the index stood at 1479.4, after sliding to 1363.2 in the previous period. The refi index four-week moving average dropped to 1470.2, after falling to 1530.3 in the week ended June 11.

CHICAGO PURCHASING MANAGERS SURVEY

Wednesday, June 30, 10 a.m. EDT

The Chicago-area purchasing managers' June index of industrial activity in the Midwest probably cooled down to 64%, according to the median forecast of economists surveyed by Action Economics. In May, the index jumped unexpectedly, to a robust 68%, from 63.9% in April, and 57.6% in March.

The production index component rebounded to 71.1%, from 59.1% in April. The new orders index also improved, reaching 74.4%, the highest level in twenty years, from 65.1% in April. What's more, the index tracking unfilled orders showed further increases, albeit at a slower pace than in April. Continued gains in new orders and the piling-up of unfilled orders are raising the need for workers. The employment index climbed to 54.8% in May, from 50.9% in the prior period.

MEETING OF NOTE

Thursday, July 1, 4:20 p.m. EDT

Federal Reserve Bank of San Francisco President Janet Yellen addresses a Western Economic Assn. conference in Vancouver, Canada.

EARNINGS REPORTS

Biomet, ConAgra Foods, Exide, and more.

VEHICLE SALES

Thursday, July 1

Sales of domestic and imported cars and light trucks during June probably came in at an annual pace of 16.9 million vehicles, according JP Morgan Chase. The June forecast would be down from the impressive 17.8 million rate in May.

However, Ward's Automotive Reports says the decline is partly due to a reduced number of selling days. Looking at the average number of vehicles sold per day, June should be even better than May. In addition, Ward's sees third-quarter sales running at an annualized rate of 17.7 million.

Overall, vehicle inventories are high and an incentive-driven push to get 2004 model year vehicles out the door to make way for the 2005 models is likely.

JOBLESS CLAIMS

Thursday, July 1, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended June 26 probably slipped to 345,000, according to the consensus forecast of economists surveyed by Action Economics. Jobless claims jumped back up to 349,000 for the week ended June 19, after falling to 336,000 in the prior period, from 351,000 for the week ended June 5.

The four-week moving average moved up to 344,300, from 343,300 in the week ended June 19. Also during the week of June 19, continuing jobless claims stood at 2.97 million, up slightly from 2.89 million set during the previous week and a three-year low of 2.86 million over the week ended May 29.

ISM SURVEY

Thursday, July 1, 10 a.m. EDT

The June index of industrial activity from the Institute for Supply Management most likely eased to 61.9%, according to the consensus forecast of economists surveyed by Action Economics. In May, the index bounced back up to 62.8%, from 62.4% in April, 62.5% in March, and 61.4% in February. The June forecast is still in line with vigorous factory activity.

Demand did show some deceleration. The index tracking new orders eased to 62.8%, from 65% in April. Production and the backlog of unfilled orders also showed some slowing, although they remain at strong levels.

The index for employment, however, surged to its highest level in more than thirty years. In May, the index hit 61.9%, from 57.8% in April. In addition, 17 of the 20 industries covered in the survey reported an increase in payrolls.

In a sign that bottlenecks may be rising in the factory sector, supplier deliveries slowed. The index rose to 69.4%, from 67.1% in April. A higher index level means more respondents are reporting slower delivery times for supplies and materials. Bottlenecks could also be adding pressure to prices. Most manufacturers said they paid more in May for goods and materials, with 19 of 20 industries reporting an increase in prices.

CONSTRUCTION SPENDING

Thursday, July 1, 10 a.m. EDT

Outlays for new structures probably increased 0.6% in May, according to the median estimate of economists queried by Action Economics. In April, construction spending expanded by 1.3%, after shooting up 2.4% in March, and rising by 0.9% in February.

Private homebuilding has been the driving the headline construction figure. Over the past year, private residential construction has grown by 23.7%, a record level since the most recent data series began in 1993. Excluding this sector, construction spending would be up 5.1% over the past year. However, the pace of residential building may cool off a little as interest rates keep rising.

EMPLOYMENT REPORT

Friday, July 2, 8:30 a.m. EDT

Economists surveyed by Action Economics expect another month of good payroll data. The consensus forecast is for payrolls in June to have expanded by another 230,000 positions. The Labor Dept. reported a gain of 248,000 jobs in May, after an upwardly revised increase of 346,000,000 during April. Because the labor market has turned more positive, more people are searching for jobs. That's likely to keep the unemployment rate steady at 5.6%.

Factory payrolls probably improved as well. The Action Economic survey shows a median forecast of 25,000 additional jobs in June, after growing by 32,000 during May, and 29,000 in April.

The average workweek very likely remained at 33.9 hours, while average hourly earnings are forecast to have risen by 0.3%, for a second straight month.

MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS

Friday, July 2, 10 a.m. EDT

Factory orders most likely fell by 0.8% in May, say economists surveyed by Action Economics. In April, orders cooled off, slipping 1.7%. The easing is most likely a breather after the strong results in the prior two months. In March, orders surged 5% on top of a 1.1% gain in February.

New orders for durable goods were already reported down 1.6% during May, following a revised 2.6% drop in the previous month, and a 5.9% leap in March. Even with the declines in April and May, durable goods orders are still on track to post a gain in the second quarter vs. the first-quarter average. That's because the recent levels, despite the declines, are still stronger than levels in January and February.

Unfilled orders of durable goods rose by another 0.4% in May, and 7.8% from the same period a year ago. While orders may have eased, rising backlogs of unfilled orders shows factories will remain busy. By Kathleen Madigan


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