Vital Signs for the Week of June 13


Federal Reserve Chairman Alan Greenspan sees no reason to stop raising interest rates. In his testimony before Congress on June 9, he said the economy is still on "reasonably firm footing" and referred to the Fed's well worn phrase that the policy accommodation provided by the current low level of interest rates "can be removed at a pace that is likely to be measured."

In addition, the Fed Chairman cited several issues on the central bank's radar, including a frothy U.S. housing market, low long-term interest rates, improved corporate pricing power, a recent jump in unit labor costs, and the uncertainty about whether higher labor costs will erode corporate profits or be passed along to customers. The current concern among each of these issues would seem to favor further rate hikes.

However, bond traders perceive that inflation has peaked, and they see slower economic growth ahead. Those perceptions are driving a view that the Fed should soon halt its monetary tightening, and they are contributing to the current unusually low level of long-term rates.

These differences of opinion make the upcoming batch of inflation data especially important. Analysts will be particularly interested in core consumer and producer prices, which exclude energy and food. Judging from the tame-looking consensus forecast for the May indexes, the bond traders may feel better about their positions.

One soft part in the economy is manufacturing. The Federal Reserve's industrial production report will be scanned to see if the weakness remains mostly contained among autos and utilities. The June Philadelphia and New York Fed factory activity surveys also come out this week following a previous batch of regional and national factory activity indexes showing varying degrees of weakness.

The rest of the economy should continue to look healthy. Outside of autos, retail sales are expected to look pretty good and new home starts in May probably kept running at a red hot clip.

Here's the weekly economic roundup.

MEETINGS OF NOTE

Tuesday, June 14, 6:15 a.m. EDT

U.S. Treasury Secretary John Snow speaks at the Centre for European Policy Studies in Brussels.

9:10 a.m. EDT

Federal Reserve Bank of Richmond President Jeffrey Lacker speaks on retail financial innovations at the North Carolina Bankers' Association's Annual Convention at Kiawah Island, S.C.

10 a.m. EST

Federal Reserve Board Governor Susan Schmidt Bies discusses current regulatory issues facing the banking industry at the North Carolina Bankers' Association's Annual Convention at Kiawah Island, S.C..

6:15 p.m. EDT

Federal Reserve Bank of St. Louis President William Poole gives a speech entitled "Understanding the Term Structure of Interest Rates" before the Money Marketeers of New York University in New York City.

EARNINGS REPORTS

Best Buy, BMC Software, and more.

ICSC-UBS STORE SALES

Tuesday, June 14, 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 11. In the week ended June 4, sales grew 0.4%, following a 1% fall in the week ended May 28, and a 0.2% dip in the prior period.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, June 14, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the second fiscal week of June, ended June 11. During the first fiscal week of June, sales were off 0.5% compared with the same period in May. For the entire month of May, sales were up 2.5% compared with April.

RETAIL SALES

Tuesday, June 14, 8:30 a.m. EDT

May retail sales are expected to have slipped a little. The consensus forecast among economists queried by Action Economics is a 0.2% decline. In April, sales jumped 1.4% on a 2.5% jump in auto sales and a 1.9% increase in gasoline station sales. In March, sales were up 0.4%, following a 0.5% gain in February.

Higher gas prices have been fueling gas station sales in recent months. However, a downturn in energy prices, including gasoline, should mean a smaller monthly increase in sales for May even with the Memorial Day holiday.

Excluding autos, economists expect a 0.2% increase in retail sales. In May, light vehicle sales decelerated to an annual rate of 16.6 million, from 17.4 million in April. Monthly retail sales minus vehicles were 1.1% higher in April and up 0.2% in March.

PRODUCER PRICE INDEX

Tuesday, June 14, 8:30 a.m. EDT

Producer prices for finished goods sold by U.S. businesses probably eased slightly in May. Economists queried by Action Economics are calling for a 0.2% decline on the heels a 0.6% increase during April and a 0.7% jump in March. Based on the May consensus forecast, producer prices would be 4.0% higher than a year ago, following a yearly pace of 4.8% in April, and 4.9% in March.

Excluding food and energy costs, core prices probably increased by 0.2% in May. In April, core producer prices grew 0.3%, after 0.1% increases in both March and February. Based on the Action Economics survey, core producer prices would be up by 2.7% from the same period a year ago, after registering yearly gains of 2.6% in the prior two months.

Intermediate and crude material prices appear to be moderating. Crude materials, the most basic items used to make goods, did rise 2.7% for the month of April on higher metals prices. However, the yearly increase of 11.8% in April remains far below the peak of 25.5% in November, 2004.

Intermediate goods, which include plywood and fertilizers, rose 0.8% on a monthly basis in April. However, the increase from the same period a year ago slowed to 8.2%, from 8.8% in March, and 9.9% back in November. A slowdown in global economic growth and some deceleration in industrial activity in the U.S. should help reduce price pressures for many crude and intermediate goods.

MEETINGS OF NOTE

Wednesday, June 15, 7:15 p.m. EDT

Federal Reserve Board Governor Donald Kohn speaks about risk management at a bankers conference in New York City.

7:30 p.m. EDT

Federal Reserve Bank of Boston President Cathy Minehan gives welcoming remarks at the Boston Fed's annual economic policy conference titled "Wanting It All: The Challenge of Reforming the U.S. Health Care System" in Chatham, Mass.

EARNINGS REPORTS

Bear Stearns and more.

MORTGAGE APPLICATIONS

Wednesday, June 15, 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 10. In the week ended June 3, the purchase index bounced back to 479.3, after slipping to 462.7, for the week ended May 27, from 482.3 in the previous week. The four-week moving average, however, eased to 473.4, from 485.1 for the week ended May 27.

The average rate on a conventional 30-year mortgage, according to HSH Associates, fell a little more. In the week ended June 3, the rate dropped to 5.74%, from 5.82% during the previous period.

The MBA's refi index also climbed. In the period of June 3, the index stood at 2362.1, from 2142.1 in the prior week and 2167.9 for the week ended May 20. The four-week moving average climbed to 2177.2, from 2152.5 in the week ended May 27.

CONSUMER PRICE INDEX

Wednesday, June 15, 8:30 a.m. EDT

May consumer prices for all goods and services are forecast to have nudged up by 0.1%. That's the median forecast among economists polled by Action Economics. In April, consumer prices increased 0.5% as energy prices surged 4.5%. The forecasted April gain would put the yearly rate of inflation at 3.0%, after rising to 3.5% in April.

Excluding the volatile energy and food categories, consumer prices probably grew by 0.2%. In April, the core consumer price index was unchanged, following a 0.4% gain in March, and a 0.3% increase in February. The rate of core inflation for April would remain at 2.2% when compared with the same period a year ago.

EMPIRE STATE MANUFACTURING SURVEY

Wednesday, June 15, 8:30 a.m. EDT

The New York Federal Reserve Bank issues its latest survey of business conditions for manufacturers in the New York Fed district. The consensus among economists queried by Action Economics is for a June reading of 3. The June forecast would be an improvement after tumbling to -11.1 in May, from 2 in April and 20.2 in March.

More respondents reported fewer new orders, causing the new orders series to fall to -7.1, from -1.2 in April, and 8.6 in March. A negative reading indicates that more respondents than not reported a fall in orders during the month. The shipments index did climb back to 0.8, from -1 in April. The level of unfilled orders contracted more sharply in May with an index reading of -17.6, from -8.2 in April and -10.1 in March.

Despite a large drop in current conditions, respondents didn't see much change in the coming six months. The future expectations index only eased to 35.7, from 37.3 in April. The outlook for new orders and shipments actually improved. However, the overall trend that manufacturers are catching up with unfilled orders and that inventory levels may be a bit too high remained intact.

BUSINESS INVENTORIES

Wednesday, June 15, 8:30 a.m. EDT

April inventories held by manufacturers, wholesalers, and retailers are forecast to have increased by 0.3%, according to Action Economics. Factory inventories were already reported to have nudged up 0.1% in April, while wholesale inventories grew 0.8%. Total business inventories increased by 0.4% in March following a 0.5% increase in February.

REAL EARNINGS

Wednesday, June 15, 8:30 a.m. EDT

Inflation-adjusted weekly earnings of production workers probably edged up 0.1% in May. The Labor Dept.'s employment report showed a 0.2% rise in weekly earnings during the period, while economists expect a 0.1% increase in the May consumer price index. April inflation-adjusted earnings grew 0.2% after slipping by 0.3% for two straight months. Compared with the same period a year ago, April inflation-adjusted earnings were off by 0.3%, after a 0.5% yearly decline in March.

INDUSTRIAL PRODUCTION

Wednesday, June 15, 9:15 a.m. EDT

U.S. industrial production is expected to have increased 0.2% in May. That's the median estimate of economists surveyed by Action Economics. The April results showed a 0.2% decline in output, a downwardly revised 0.1% increase in March, and an upwardly revised 0.5% gain during February. The April drop stemmed from a 2.3% drop in output from utilities. Manufacturing production was unchanged in April even with a big 3.5% plunge in vehicle production right on the heels of a 4% fall in March.

The average operating rate for all industries probably held at 79.2% for a second straight month. The March utilization rate was 79.4%.

Beyond the sickly American auto makers, manufacturers are generally doing fine. The April report showed continued strength in machinery, computer and electronic products, and aerospace. That's a good sign for capital spending.

HOME BUILDERS SURVEY

Wednesday, June 15, 1 p.m. EDT

The National Assn. of Home Builders and Wells Fargo bank issue the monthly survey results for June. The report updates housing market conditions by measuring builders' assessments of current sales, buyer traffic through model homes, and expected demand.

In May, the activity index rebounded to a reading of 70, from 67 in April. The March index was also 70.

The index tracking single-family home sales posted a similar rebound, coming in at 76 for May, from 73 in April.

Expectations for sales in the coming six months edged up to 77, from 76 in the prior period. The index for prospective buyer traffic jumped to 53, the highest level since August of 2004. The April reading slipped to 50, from 52 in March.

According to the NAHB, low mortgage rates and reasonable inventory levels suggest continued strength in the housing sector for the remainder of the year.

BEIGE BOOK

Wednesday, June 15, 2 p.m. EDT

The Federal Reserve will release its compilation of regional economic activity, based on survey responses from each of its 12 districts. The Beige Book comes in advance of the upcoming two-day monetary policy meeting beginning Wednesday, June 29. Fed watchers will scan the report for any hints of additional inflationary pressures or indications of softness in the economy's performance. A clear majority of economists surveyed by Action Economics expect the Fed will lift rates by 25 basis points, to 3.25%.

MEETINGS OF NOTE

Thursday, June 16, 8 a.m. EDT

Federal Reserve Bank of Boston President Cathy Minehan gives an introductory speech on the second day of the Boston Fed's annual economic policy conference titled "Wanting It All: The Challenge of Reforming the U.S. Health Care System" in Chatham, Mass.

8 a.m. EDT

U.S. Treasury Secretary John Snow holds a press conference in Frankfurt, Germany.

1:30 p.m. EDT

Federal Reserve Bank of Kansas City President Thomas Hoenig discusses the economic outlook to a group of bankers in Wichita, Kan.

1:30 p.m. EDT

Federal Reserve Bank of Cleveland President Sandra Pianalto speaks about regional issues in Cleveland, Ohio.

EARNINGS REPORTS

Adobe Systems, Goldman Sachs, KB Home, and more.

JOBLESS CLAIMS

Thursday, June 16, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended June 11 probably remained fairly steady at 329,000. Jobless claims fell back to 330,000 in the week ended June 4, from 351,000 for the week of May 28, and 324,000 in the previous period.

The four-week moving average fell to 331,800, from 334,500 during the previous period. Continuing jobless claims held at 2.59 million in the week ended May 28.

NEW RESIDENTIAL CONSTRUCTION

Thursday, June 16, 8:30 a.m. EDT

Housing starts probably improved a little in May. The annual rate for the month is expected to be 2.05 million, according to the median forecast from Action Economics. Housing starts bounced back to an annual rate of 2.04 million, from 1.84 million in March, but remained below the tremendous February rate of 2.23 million. The February result was the strongest yearly pace since February, 1984.

PHILADELPHIA FED SURVEY

Thursday, June 16, 12 p.m. EDT

The Philadelphia Federal Reserve Bank will issue its June survey of business conditions for the mid-Atlantic region. The consensus forecast from Action Economics is for an index reading of 9.5. The May Philly Fed index plunged to 7.3, from 25.3 for April, and 11.4 in March. The May reading was the lowest since June, 2003. Manufacturers' outlook for the coming six months eased to 22.3, from 27.5 in April, and 29.8 in March.

The current conditions index for shipments and new orders indexes both fell from April levels but remained above March readings. The unfilled orders index was less negative, rising to -0.1, from -3.8 in April. A negative reading means more respondents than not reported a decline in inventories for the month.

In a reprise of last May's special question, the region's manufacturers were asked about marking up the prices of finished goods. Similar to a year ago, 40.9% of this year's respondents said they plan to keep prices steady for the coming three months. However, among those who plan to raise prices, only 1% report a price increase of 10%-15% is in the works, compared with 8.6% a year ago. Of those who have already raised prices, not one had instituted an increase of 15% or more. Last year, 3.4% had done so. Based on the data, it looks as if the average price increase this year is smaller than in 2004.

CURRENT ACCOUNT

Friday, June 17, 8:30 a.m. EDT

The current account deficit -- a kind of cash flow statement of U.S. international business, including trade in goods and services, net investment income, and foreign transfers -- is expected to have reached $188.9 billion in the first quarter. That's the consensus among economists queried by Action Economics.

In the fourth quarter, the current account deficit was $187.9 billion, up from $165.9 billion in the third quarter. The big quarterly jump came largely from a widening of the trade gap. The surprising March trade deficit of $53.6 billion helped curb the first-quarter current account deficit.

The consensus forecast of a $188.9 billion deficit would be 6.2% of the nominal gross domestic product. The level was 6.3% of GDP in the fourth quarter and 5.6% of GDP in the third quarter.

CONSUMER SENTIMENT INDEX

Friday, June 17, 9:45 a.m. EDT

The University of Michigan's Survey Research Center will report its preliminary reading of consumer sentiment for June. The consensus among economists surveyed by Action Economics is for the index to edge up to 88. The final May reading was 86.9, off slightly from the April reading of 87.7, and the March result of 92.6.

In May, the current conditions index climbed a little, to 104.9, from 104.4 in April, but remained below the final March reading of 108. The future expectations index dipped to 75.3, from to 77 in April, and 82.8 in March. By James Mehring


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