Vital Signs for the Week of Aug. 2


The economy grew by just 3% in the second quarter of the year. But the economy can't be doing poorly when 3% comes off as a lackluster gain. What's more, it would appear that the quarterly tally of economic growth was done in by a poor June. Consumer spending rose at an anemic annualized rate of 1% between April and June. If spending had grown at even half the 4.1% pace tallied over the first three months, the second-quarter number would have been 3.7%, or just below the 3.8% that economists surveyed by Action Economics had expected.

Of course, in order to get back to the 4% growth or better seen in the four quarters prior to the second quarter, consumers will need to pick up their spending. After all, consumer spending does make up 70% of the economy, making it the heavyweight component.

As the third quarter unfolds, various factors will be tugging at consumers' wallets. Besides the cool weather in June that retailers pointed to for their weak numbers, energy prices have also surely had some effect. Gasoline prices hit $2.06 per gallon in May, as oil prices surged to $41 per barrel. Right now, gasoline is back to $1.90 a gallon, but oil prices touched a record high of $43.12 dollars per barrel in late July. If crude prices don't cool off, gasoline may very well surge again as the summer vacation period heats up and the Labor Day weekend approaches.

At the same time, job and income growth should help offset any energy-related drag on the economy. According to economists surveyed by Action Economics, July payrolls probably expanded by 225,000 jobs.

However, according to economists at Goldman Sachs, the July figure could surprise to the upside. Looking at historical data, Goldman believes a propitious confluence of circumstances has emerged. First, July payroll gains are strong in the early stages of an economic revival. Second, the span between the June and July surveys for the employment report was five weeks, not the usual four weeks. The longer period allows for more job gains. Lastly, soft June reports have typically been followed by surprisingly robust Julys. In the end, Goldman sees a July increase of 300,000 jobs.

With the rest of the economy humming along, it may not be far fetched. The GDP report showed that businesses are still spending and investing. Better growth abroad and the weaker dollar lifted demand for American exports. And those trends show few signs of abating.

Both the national factory and non-manufacturing activity reports from the Institute for Supply Management are forecast to firm, after slipping in June. Factory orders are also expected to rebound after a couple of weak months.

In order to ratchet up growth to 4% or better, consumers will be the key. Early signs of whether they just took a respite in June or are really on vacation from the malls will emerge this week. Vehicle sales are expected to improve, and chain store sales come out on Thursday.

Here's the weekly economic calendar.

EARNINGS REPORTS

Monday, Aug. 2

Entergy, Procter & Gamble, R.J. Reynolds Tobacco, Unocal, and more.

ISM SURVEY

Monday, Aug. 2, 10 a.m. EDT

The July index of industrial activity from the Institute for Supply Management is expected to improve from June's results. According to the median forecast of economists surveyed by Action Economics, the July reading will be 62%, from 61.1% in June. In May, the index bounced back up to 62.8%, from 62.4% in April.

Demand did show widespread deceleration in June. The index tracking new orders eased to 60%, from 62.8% in May. The indexes for production, unfilled orders, and employment also crept lower, although the absolute levels remain at strong levels. Indeed, an annualized level of 61.1% is historically in line with 6.7% growth in real gross domestic product.

In addition, there were signs that manufacturers are finally able to build up inventories. The index tracking inventory levels moved up to 51.1% in June. It was the first reading above the 50% mark -- the inflection point between an increase or decrease in inventories -- for the first time in four years.

CONSTRUCTION SPENDING

Monday, Aug. 2, 10 a.m. EDT

Outlays for new buildings very likely slipped 0.1% in June. That's the median estimate of economists queried by Action Economics. Growth in construction spending slowed during May, rising by 0.3%. In April, construction outlays climbed 1.2%, after shooting up 2.3% in March.

Private homebuilding has been the driving force of the overall construction figure. It's also a big reason for the expected June decline. Housing starts were already reported down 8.5% in June. Over the past year, single-family home construction -- which makes up the lion's share of the residential segment -- has increased 23.7%. Total residential building construction has shot up 15.3% in the twelve months through May.

EARNINGS REPORTS

Tuesday, Aug. 3

Coach, Emerson Electric, Equity Residential, Martha Stewart Living Omnimedia, Martin Marietta Materials, Masco, MBIA, Meredith, PG&E, Prudential Financial, Qwest Communications, Tenet Healthcare, Tyco International, Watson Pharmaceuticals, and more.

VEHICLE SALES

Tuesday, Aug. 3

Sales of domestic and imported cars and light trucks during July probably came in at an annual pace of 17.3 million vehicles, according to Ward's Automotive Reports. The July forecast is up sharply from the disappointing June sales figure of 15.4 million. A big reason for the anticipated rebound is better incentive offers from the major auto makers.

The poor June results have helped put inventory levels at very high levels. In fact, an ending inventory amount of 4.16 million vehicles was a record for June. That should put added pressure on the Big Three to clear the lots and incentives are the primary tool to achieve this.

ICSC-UBS STORE SALES

Tuesday, Aug. 3, 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 July 31. In the week ended July 24, seasonally adjusted sales improved by 0.2% for a second straight week, after holding steady in the week ended July 10, and climbing 0.9% in the week ended July 3.

PERSONAL INCOME AND CONSUMER SPENDING

Tuesday, August 3, 8:30 a.m. EDT

June personal income probably rose by 0.3%, according to the consensus forecast of economists surveyed by Action Economics. In both May and April, personal income grew by 0.6%, following a 0.5% gain in March. The improving labor market is helping to lift the overall measure of income. Given the June forecast, salaries and wages in the second quarter probably grew at an annualized rate of 6.6%. It would mark the fifth straight period of accelerating income growth.

Consumer spending on goods and services most likely held steady in June, after increasing by 1% in May, 0.2% in April, and 0.6% in March. June auto sales and soft retail sales don't bode well for the June tally of consumer spending. The annualized growth rate for second-quarter spending would slip to 6%, from 6.7% in the first quarter.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Aug. 3, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the fourth and final fiscal week of July, ended July 31. Through the first three weeks of July, sales were down 0.3% from the same period in June. That's a slight improvement from the 0.6% gap through the first two weeks of July. Overall June sales were off 0.2% compared to May.

EARNINGS REPORTS

Wednesday, Aug. 4

Aon Corp., Apartment Investment & Management, Hartford Financial Services, RR Donnelley, Univision Communications, and more.

MORTGAGE APPLICATIONS

Wednesday, Aug. 4, 7 a.m. EDT

The Mortgage Bankers Assn. releases its tally of mortgage applications for both home buying and refinancing for the week ending July 30. In the week ended July 23, the purchase index moved up to 444.8, from to 440.3 in the prior week, and 468.8 in the week ended July 9. The latest reading of the four-week moving average improved to 463.7, from 461.4 in the period ended July 16.

The average rate on a conventional 30-year mortgage, according to HSH Associates, inched down to 6.13% for the week of July 23, from 6.16% in the week ended July 16.

The refi index posted a small decline in the week ended July 23, coming in at 1648.8, from 1651.1 in the prior week, and 1662.4 in the week ended July 9. The refi index four-week moving average, however, jumped up to 1683, from 1617.5. The moving average will likely reverse some of its latest gain next week.

MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS

Wednesday, Aug. 4, 10 a.m. EDT

Factory orders in June probably turned higher after two monthly declines. The median forecast of respondents surveyed by Action Economics is for a 0.6% increase. In May, orders slipped 0.3%, after a 1.1% drop in April. The easing appears to be primarily a breather after strong gains of 5.0% and 1.1% in March and February, respectively. Already published data on new orders for durable goods showed an increase of 0.7% in June.

Based on the expected June increase, new order growth in the second quarter would be 10.6% at an annualized pace, even with the April and May declines. That's because the recent levels are still stronger than levels posted in January and February. In the first quarter, the annualized pace of growth was 10.3%, after jumping 13.3% in the final period of 2003, and 15.2% in the third quarter.

Unfilled orders of durable goods rose by 0.6% for a second straight month in June. Growing backlogs of unfilled orders shows factories will remain busy for a while.

ISM NON-MANUFACTURING SURVEY

Wednesday, Aug. 4, 10 a.m. EDT

The Institute for Supply Management releases its July index of business activity in the mostly services, non-manufacturing sector. The consensus estimate is an increase to 61.5%. The June reading was 59.9%, after easing to 65.2% in May, from 68.4% in April.

Despite the overall decline, the new orders index picked back up to 62.4%, from 61.3% in May, but remained slightly below the 65.6% level registered for April. There was an especially strong rebound among new export orders. The June reading was 59.5%, from 52% in May, and just a little below the 62% posted for April.

The index tracking unfilled orders held strong at 55.5%, after rising to 56.5% in May. With demand still strong, non-manufacturers are also picking up the pace of hiring. The employment index hit 57.4%, from 56.3% in May.

Non-manufacturers continue to report strong price pressures. The index tracking prices paid by respondents inched a little higher in June, to 74.6%. In May, the prices paid index climbed to 74.4%, from 68.6%. The percentage of those surveyed who reported higher prices paid for materials and services, however, did ease a little, to 52% in June, from 55% in May.

EARNINGS REPORTS

Thursday, Aug. 5

Calpine, Clorox, CMS Energy, Devon Energy, Goodyear Tire & Rubber, KeySpan, King Pharmaceuticals, Sara Lee, Williams Companies, and more.

CHAIN STORE SALES

Thursday, Aug. 5

The International Council of Shopping Centers will release its July same-store sales figures for major U.S. chain retailers. In June, receipts grew by just 2.6% from the same period a year ago. In May, the yearly gain in sales was 5.7%. The June slowdown was attributed to cool weather and soft Father's Day sales. Weekly retail sales figures during July have been better, but the rapid growth seen earlier this year will be hard to achieve.

JOBLESS CLAIMS

Thursday, Aug. 5, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended July 31 are expected to ease to 340,000, according to the median forecast of economists surveyed by Action Economics. Jobless claims moved up to 345,000, from an upwardly revised level of 341,000 for the week ended July 17, and 350,000 in the week ended July 10.

The four-week moving average, however, was pulled down to 336,300, from 337,300 in the week ended July 17. In the week of July 17, continuing jobless bounced back up to 2.96 million filings, after plunging to 2.79 million, the lowest reading since the middle of 2001.

EMPLOYMENT REPORT

Friday, Aug. 6, 8:30 a.m. EDT

A July pickup in job growth is anticipated. The median forecast of economists from Action Economics is for payrolls to have expanded by 225,000 in July. The Labor Dept.'s June data showed a disappointing gain of 112,000, after a gain of 196,000 during May. As the labor market has turned more positive, a growing number of people have renewed their job searches. That's likely to keep the unemployment rate steady at 5.6%.

The consensus forecast calls for a rebound in factory payrolls of 13,000 jobs, after unexpectedly falling by 11,000 workers in June. In May, manufacturers created 24,000 new jobs, after increasing by 32,000 in April.

The average workweek probably returned to 33.8 hours, after dropping to 33.6 hours in June, from 33.8 hours in May. Meanwhile, gains in average hourly earnings probably accelerated to a 0.3% gain, from 0.1% in June.

CONSUMER INSTALLMENT CREDIT

Friday, Aug. 6, 3 p.m. EDT

Consumers most likely accumulated another $4.8 billion of debt in June, according to the consensus forecast of economists queried by Action Economics. Total credit outstanding increased by $8.2 billion in May, following a $5.3 billion increase in April, and a $4.8 billion gain in March.

Based on the forecast, quarterly growth in consumer debt would be 3.7% at an annualized rate in the April to June period. In the first quarter, debt increased at an annual rate of 6.4%. The gains are coming largely from the non-revolving segment, which includes car loans. Since the giant $12.2 billion surge in January, revolving debt -- made up largely of credit card debt -- has declined by $3.4 billion. Given the weak June retail sales report, the trend is likely to continue for another month. By James Mehring


American Apparel's Future
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