Vital Signs for the Week of June 6


In a rather slow week for economic data, all eyes and ears will be on Federal Reserve Chairman Alan Greenspan's June 9 testimony before Congress. In light of the latest economic data, analysts may be more than a little confused about where monetary policy is headed in the coming months. The markets will look to Greenspan to help clear the air.

In recent months, the Fed has been more focused on inflation than economic growth. The revised productivity numbers released on June 2 probably did not ease the Fed's concerns. While growth in nonfarm productivity is now higher for the past two quarters than originally reported, the labor cost of producing a unit of output surged.

In the fourth quarter of 2004, unit labor costs rose at a 7.7% annual rate from the third quarter, reflecting a 10.2% annualized increase in hourly compensation. First-quarter unit labor costs increased 3.3% with compensation growth running at a 6.3% rate. Those numbers would indicate full steam ahead on raising the key federal funds rate.

Those in the bond market, however, saw the May employment report as more evidence that the Fed should take a break from rate hiking this summer. A disappointing gain of just 78,000 jobs during May was viewed as a sign that the economy is running through some tough economic headwinds.

Some economy watchers say the rise in oil prices back to well over $50 per barrel, concerns of a slowdown in consumer and business spending, and signs of slower global economic growth are more reasons why the central bank should take a break soon. That's why the yield on the 10-year Treasury bond hit a 14-month low of 3.89% on June 1.

What everyone wants to find out is whether the latest data has shifted Greenspan's view on inflation and economic growth. In addition, the bond market will be keen to know if the chairman still sees a "conundrum" between the Fed's year-long monetary tightening and the decline in long-term rates.

Following the Thursday testimony will be the April international trade report. A wider trade gap is expected after a surprise narrowing in March. The March data was not likely the first sign of a new trend. Economic growth disparities between the U.S. and the euro zone and Japan do not bode well for a downward pattern in monthly trade deficits. That's not good news for U.S factories that have significant exposure to foreign markets, both exporting and from imports.

Here's the weekly economic calendar.

MEETING OF NOTE

Monday, June 6, 9 p.m. EDT

Federal Reserve Board Chairman Alan Greenspan will speak via satellite to an international monetary conference in Beijing.

MEETINGS OF NOTE

Tuesday, June 7

U.S. President George W. Bush hosts Britain's Prime Minister Tony Blair at the White House in Washington, D.C.

9 a.m. EDT

Federal Reserve Board Governor Susan Schmidt Bies will speak to the American Bankers Association Chief Financial Officers Exchange on community banks in Chicago.

EARNINGS REPORTS

Albertson's, Toys "R" Us, and more.

ICSC-UBS STORE SALES

Tuesday, June 7, 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 week ending June 4. In the week ended May 28, sales fell 1%, after slipping 0.2% in the prior week, and 1% in the week ended May 14. Another unseasonably cool month is being blamed for the tepid results.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, June 7, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the first fiscal week of June, ended June 4. For the entire month of May, sales were up 2.5% compared with April. For the full month of April, sales were off by 3.9% compared with March.

CONSUMER INSTALLMENT CREDIT

Tuesday, June 7, 3 p.m. EDT

Consumers probably tacked on another $7 billion in debt during April. That's the median forecast among economists polled by Action Economics. In March, consumer credit grew by $5.6 billion on top of a February increase of $5.7 billion. Borrowing in the first quarter of 2005 has gotten off to a slightly slower start than the first quarter of 2004, up $22.7 billion vs. $28.2 billion.

MEETINGS OF NOTE

Wednesday, June 8

U.S. President George W. Bush hosts Turkey's Prime Minister Tayyip Erdogan at the White House in Washington, D.C.

9 a.m. EDT

U.S. Senator Charles Schumer speaks about China's currency and U.S.-China trade policy at a Council on Foreign Relations meeting in Washington, D.C.

9 a.m. EDT

Federal Reserve Board Governor Susan Schmidt Bies discusses Basel II at a conference sponsored by Risk USA in Boston.

EARNINGS REPORTS

H&R Block and more.

MORTGAGE APPLICATIONS

Wednesday, June 8, 7 a.m. EDT

The Mortgage Bankers Association releases its numbers on mortgage applications for both home buying and refinancing for the week ending June 3. In the week ended May 27, the purchase index retreated to 462.7, from 482.3 for the week ended May 20, 469.3 in the previous week, and the 526.2 record level posted for the week ended May 6. The four-week moving average edged down to 485.1, from 490 for the week ended May 20.

The average rate on a conventional 30-year mortgage, according to HSH Associates, fell a little more. In the week ended May 27, the rate eased to 5.82%, from 5.86% in the previous period.

The MBA's refi index fell a little as well. In the period of May 27, the index stood at 2142.1, from 2167.9 for the week ended May 20, but remained above the May 13 level of 2036.7. The four-week moving average climbed to 2152.5, from 2132.3 in the week ended May 20.

WHOLESALE SALES AND INVENTORIES

Wednesday, June 8, 10 a.m. EDT

April wholesale sales probably increased. The consensus among economists queried by Action Economics is for a monthly gain of 0.6%. In March, wholesales sales grew 0.2%, after a 0.5% dip in February and a 0.3% gain in January. Petroleum has played a big factor in the upward trend of wholesale sales over the past two months. Excluding petroleum, sales would have been down 0.7% in March and 0.6% in February.

Inventories rose 0.4% in March, after a 0.6% increase during February. Even with inventory growth slightly outpacing sales growth, the inventory-to-sales ratio held at 1.19 for a second straight month.

MEETINGS OF NOTE

Thursday, June 9, 9 a.m. EDT

Federal Reserve Bank of Chicago President Michael Moskow gives the welcoming remarks at a minority business development conference in Chicago.

10 a.m. EDT

Federal Reserve Board Chairman Alan Greenspan testifies before the Joint Economic Committee of Congress on the state of the U.S. economy in Washington, D.C.

3 p.m. EDT

International Monetary fund Managing Director Rodrigo Rato, Bank of Spain Governor Jaime Caruana, and Spanish Prime Minister Jose Luis Rodriguez Zapatero speak at a conference in Madrid.

EARNINGS REPORTS

National Semiconductor, Navistar International, and more.

JOBLESS CLAIMS

Thursday, June 9, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended June 4 most likely fell to 330,000. Jobless claims climbed to 350,000 for the week of May 28, after a small upward revision to 325,000 in the previous week. In the week ended May 14, initial claims stood at 322,000.

The four-week moving average climbed to 334,500, from 331,000 during the previous period. In the week ended May 28, continuing jobless claims edged up to 2.6 million in the week ended May 21 from 2.57 million.

MEETING OF NOTE

Friday, June 10

U.S. President George W. Bush hosts South Korea's President Roh Moo-hyun at the White House in Washington, D.C.

12:30 p.m. EDT

Federal Reserve Bank of Philadelphia President Anthony Santomero discusses the U.S. economic outlook at the Pennsylvania Association of Community Bankers and the American Association of Bank Directors in Washington, D.C.

INTERNATIONAL TRADE

Friday, June 10, 8:30 a.m. EDT

The April monthly trade deficit is forecast to widen. The consensus view among economists is a U.S. trade deficit for goods and services of $58 billion. In March, the trade gap unexpectedly narrowed to $55 billion, on the heels of a record trade gap of $60.6 billion in February and a January shortfall of $58.5 billion.

The March retreat was due largely to an odd decline in imports of consumer goods such as apparel, household items, furniture, and toys. At the same time, there was a 1.5% pop in U.S. exports. March exports got a big boost from $504 million in civilian aircraft exports. However, monthly aircraft exports can be volatile. Given the strength of the U.S. economy, imports of household goods is expected to rebound a little in April.

Oil is another important component. The Commerce Dept. report calculates totals based on the dollar value and not quantity. In April, crude oil prices were a mirror image of March, breaching $58 per barrel early on and then retreating back near $52 per barrel by the end of the month.

IMPORT AND EXPORT PRICES

Friday, June 10, 8:30 a.m. EDT

Import prices most likely retreated in May. According to Action Economics, import prices fell 0.4% during the month, after an energy-driven 0.8% jump in April. March import prices rose 2% on a 12.3% surge in imported petroleum prices. Overall, import prices were up 8.1% from a year ago in April.

Excluding petroleum, April import prices increased 0.4%, following a 0.3% gain in March. During those two months, petroleum product prices grew by 3.1% and 12.3%, respectively. Minus petroleum, the yearly increase in April import prices was 3%. However, this measure of import prices is up a bit from the 1% increase in 2003. The weaker dollar against major currencies such as the euro and Canadian dollar has played a role in higher import prices.

May export prices probably increased 0.3%, after 0.6% gains in both April and March. Compared with a year ago, export prices were up 3.1% in April, vs. a 3.2% yearly pace in the prior period. A fall in the prices for agricultural products are offsetting price gains in other categories, most notably industrial supplies and materials such as fuels, metals, and chemicals.

FEDERAL BUDGET

Friday, June 10, 2 p.m. EDT

The federal government probably ran a $50 billion budget deficit in May, say economists surveyed by Action Economics. The forecast shortfall would be the smallest for the month since a $27.9 billion deficit back in 2001. The Treasury Dept. posted a surplus of $57.7 billion in April, the biggest April surplus since 2002. Receipts in April were $57.5 billion greater than a year earlier, led by a $45 billion increase from a year ago in individual income tax receipts. The improved economy has boosted tax receipts from both households and businesses.

So far, the current fiscal year budget gap is still running a little behind the year ago total. Through the first seven months of fiscal 2005, the deficit stands at $236.9 billion vs. $283.8 billion through April of 2004. By James Mehring


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