Vital Signs for the Week of July 25


In his semiannual testimony on the Federal Reserve's Monetary Policy Report to the Congress, Chairman Alan Greenspan noted the economic sky got cloudier in the second quarter. Nonetheless, economists expect real gross domestic product data due on July 29 to show a fairly decent gain of 3.4% in the previous quarter. More importantly, however, is the outlook for the second half. The coming week's data will provide some early indications of whether the economy is entering sunnier days.

Chairman Greenspan noted that weakness last quarter was focused in the manufacturing sector. June industrial production numbers already showed that output ended the quarter on a good note and provided some optimism of a third-quarter rebound. July factory activity surveys will help shed some more light on whether or not conditions are changing for the better.

In addition, it's worth looking below the topline figure for the June durable goods orders report. Possible payback from a 165% surge in civilian aircraft orders may weaken the overall figure. It's important to see whether other categories that took a dip in May, such as machinery and metals, bounce back. Factory orders are a good gauge of business sentiment as it shows whether companies are spending.

The latest consumer sentiment figures also come out this week. These figures from the University of Michigan and the Conference Board have not corresponded well with actual spending patterns over the past few years. However, it will be useful to see what happens given the sharp rebound in oil and gasoline prices since late June. Even small declines could be interpreted that households feel improving labor and stock markets matter more than the higher prices at the pump.

The Fed will also pay close attention to the second-quarter employment cost figures due on Friday. Greenspan & Co. are paying close attention to labor costs, with particular focus on costs per unit of output. An unexpectedly strong gain, especially if centered among wages and salaries, will strengthen the case to keep raising rates.

Here's the week's economic calendar.

EARNINGS REPORTS

Monday, July 25

ACE Limited, Altera, American Power Conversion, Avaya, Avon Products, BellSouth, Cendant, Ecolab, Molex, Pitney Bowes, Plum Creek Timber, Quest Diagnostics, Texas Instruments, Xerox, and more.

EXISTING HOME SALES

Monday, July 25, 10 a.m. EDT

Sales of existing homes, which includes single-family homes and condominiums, probably maintained a robust rate. The consensus among economists surveyed by Action Economics is for an annual rate of 7.14 million. The National Assn. of Realtors reported May sales reached an annual pace of 7.13 million, after establishing a record level pace of 7.18 million in April.

The NAR expects overall existing home sales to hit 6.97 million for 2005, up from 6.78 million in 2004. One big reason for the stronger forecast is low mortgage rates.

MEETING OF NOTE

Tuesday, July 26, 2 p.m. EDT

Federal Reserve Board Governor Edward Gramlich speaks about affordable housing at the Hawaii Business Roundtable in Honolulu, Hawaii.

EARNINGS REPORTS

Tuesday, July 26

AFLAC, Allied Waste Industries, Automatic Data Processing, Avery Dennison, Biogen Idec, BJ Services, Black & Decker, Burlington Northern Santa Fe, Centex, Chubb, Citrix Systems, Corning, Countrywide Financial, DuPont, Electronic Arts, Engelhard, Health Management Associates, International Paper, L-3 Communications Holdings, Lexmark International, Linear Technology, Lockheed Martin, McGraw-Hill, Medco Health Solutions, NCR, PerkinElmer, Safeway, Sanmina-SCI, Siebel Systems, Sigma-Aldrich, Southern, Stanley Works, Starwood Hotels & Resorts, Sun Microsystems, Thermo Electron, United States Steel, Valero Energy, Verizon, Vulcan Materials, Waters, William Wrigley Jr., and more.

ICSC-UBS STORE SALES

Tuesday, July 26, 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 July 23. During the week ended July 16, sales improved 0.3%. During the prior week, sales rose 0.1%, after a 0.5% increase during the period ended July 2.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, July 26, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the third fiscal week of July, ended July 23. During the first two weeks of July, sales were up 0.2%. In the entire month of June, sales grew 0.5% compared with May.

RICHMOND FED SURVEY

Tuesday, July 26, 10 a.m. EDT

The Richmond Federal Reserve Bank will release the July survey of business conditions in the Richmond Fed district. The June survey showed that manufacturers lost some of their optimism.

The headline shipments index edged dropped to -3 in June, from 4 in May, and 2 in April. In addition, the index tracking new orders plunged to -7, from 5 in both May and April. The unfilled orders index worsened, coming in at -14 for June, from -6 in May, and -3 for April. More manufacturers than not also continued to trim their workforce. The employment index was -7 for June, the fourth straight monthly reading below zero.

Optimism for the coming six months bounced back, climbing to 22 in June. The shipments index stood at 17 in May, after easing to 23 in April, from 33 in March. The new orders, backlogged orders, and capacity utilization readings all improved, indicating improved activity and tighter capacity conditions.

As far as pricing power and input costs are concerned, manufacturers expect to be squeezed some more. Increases in both prices paid and received are expected to accelerate. However, price hikes for the goods manufacturers produce are expected to remain smaller than changes in input costs. Expectations of less free capacity to meet demand may be one reason why respondents were a little more optimistic about prospective price increases.

CONSUMER CONFIDENCE INDEX

Tuesday, July 26, 10 a.m. EDT

The Conference Board's July index of consumer confidence probably edged up to 106.1. That's the median estimate of economists polled by Action Economics. In June, the index bounced up to 105.8, from 103.1 in May, and 97.5 for April. Once again, respondents said they felt better about both current conditions and future expectations.

June sentiment regarding jobs and business conditions improved marginally. However, consumers were a bit more optimistic about incomes. In June, 19.4% of respondents expected an improvement in income, the best reading since December of 2004. Those saying they believed incomes would decline fell to 7.5%, from 8.6% in May. While consumer confidence has not correlated strongly with resilient consumer spending patterns, the latest confidence data would seem to be a positive sign for second-half spending.

EARNINGS REPORTS

Wednesday, July 27

Air Products and Chemicals, Allegheny Technologies, Allergan, Amerada Hess, Applied Micro Circuits, Bausch & Lomb?Bemis Company, Boeing, Brunswick, Chiron, Colgate-Palmolive, ConocoPhillips, CSX? EOG Resources, Equity Residential, Express Scripts, HCA, Hilton Hotels, International Flavors & Fragrances, Kellogg, Liz Claiborne, Louisiana-Pacific, LSI Logic, McKesson, MeadWestvaco, Meredith, Monster Worldwide, Newmont Mining, Norfolk Southern, OfficeMax, Pinnacle West Capital, Praxair, Pulte Homes, Sealed Air, Sprint, Starbucks, T. Rowe Price, TECO Energy, Temple-Inland, Watson Pharmaceuticals, WellPoint, Xcel Energy, XL Capital, Zimmer, and more.

MORTGAGE APPLICATIONS

Wednesday, July 27, 7 a.m. EDT

The Mortgage Bankers Assn. releases its numbers on mortgage applications for both home buying and refinancing for the week ending July 22. The purchase index stood at 488.7 for the week ended July 15, down from 489 in the previous week, and 520.8 in the week ended July 1. The four-week moving average, climbed to 494, from 491.7 for the week ended July 8.

The average rate on a conventional 30-year fixed mortgage, according to HSH Associates, moved up to 5.84% during the week ended July 15. For the week ended July 8, the mortgage rate stood at 5.81%.

The MBA's refi index rose as well. In the period of July 15, the index rose to 2618.2, from 2554.3 in the week ended July 8, but remained above the 2788.2 reading for the week ended July 1. The four-week moving average kept rising. In the week ended July 15, the average stood at 2622.5, from 2611.7 for the period ended July 8.

DURABLE GOODS ORDERS

Wednesday, July 27, 8:30 a.m. EDT

Orders for durable goods coming into factories probably fell in June. According to Action Economics, orders are expected to decline 1.4%. The drop comes on the heels of a 5.5% jump in May due to a 165% surge in the volatile aircraft orders category. Outside of civilian aircraft, the May figures were less impressive. Excluding the transportation sector, May orders were off 0.3%.

Another measure for business spending is durable goods orders less defense equipment and aircraft categories. In May, this core nondefense capital goods orders measure fell 2.5%, after a 1.7% gain in April.

NEW RESIDENTIAL SALES

Wednesday, July 27, 10 a.m. EDT

New single-family homes sales probably held fairly steady during June. The consensus among economists surveyed by Action Economics is for sales to stand at an annual pace of 1.3 million. In May, sales rose to an annual pace of 1.3 million, from 1.27 million in April and March.

BEIGE BOOK

Wednesday, July 27, 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 monetary policy meeting on Tuesday, Aug. 9. Economy watchers will scan the report for confirmation of Chairman Alan Greenpsan's positive outlook on growth and cautious sentiment regarding inflation. Economists queried by Action Economics are unanimous in their expectation of another 25 basis point rate hike, to 3.5%.

EARNINGS REPORTS

Thursday, July 28

Aetna, Alberto-Culver, Allegheny Energy, Ameren, Andrew, Apache, AutoNation, Ball, Bristol-Myers Squibb, Burlington Resources, CenturyTel, Cinergy, Coca-Cola Enterprises, Dow Chemical, DTE Energy, Eastman Chemical, ExxonMobil, Franklin Resources, Gateway, Georgia-Pacific, Goodrich, Hercules, Jefferson-Pilot, KLA-Tencor, Loews, Marathon Oil, Mercury, MetLife, Nabors Industries, Newell Rubbermaid, Northrop Grumman, Parker Hannifin, Phelps Dodge, Progress Energy, ProLogis Trust, Raytheon, Ryder System, Sabre Holdings, Simon Property Group, Snap-on, St. Paul Travelers, Symantec, Waste Management, Wendy's International, and more.

JOBLESS CLAIMS

Thursday, July 28, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended July 23 most likely rose to 319,000. The coming weekly numbers will be hard to interpret given the annual factory retooling by U.S. auto makers. Jobless claims fell to 303,000, from an upwardly revised 337,000 in the week ended July 9, and 321,000 in the prior week.

The four-week moving average edged up to 321,300, from 318,000 for the week ended July 16. Continuing jobless claims for the week ended July 9 retreated to 2.58 million, from 2.62 million in the previous week.

HELP WANTED ADS

Thursday, July 28, 10 a.m. EDT

The Conference Board releases its June index of help-wanted ads, based on ads gathered from major newspapers across the nation. The national index slipped to 37, after standing at 39 in both April and March, and 41 in both February and January. A year ago, the June index was 38.

The percentage of markets with a rising want-ad volume improved to 39%, from 33% in April, and 12% in March. Overall, help-wanted advertising shrank in all nine U.S. regions during the three-month period through May.

MEETINGS OF NOTE

Friday, July 29, 3:50 p.m. EDT

Federal Reserve Bank of Dallas President Richard Fisher speaks about the world economy before the Council of Economic Advisors to Utah.

3:50 p.m. EDT

Federal Reserve Bank of San Francisco President Janet Yellen speaks about U.S. economic conditions in Portland, Ore.

EARNINGS REPORTS

American Electric Power, Anadarko Petroleum , Archer Daniels Midland , Baker Hughes, Chevron, Citizens Communications, Constellation Energy Group, ITT Industries, Peoples Energy, and more.

GROSS DOMESTIC PRODUCT

Friday, July 29, 8:30 a.m. EDT

The advanced report on economic growth for the second quarter of 2005, measured by real gross domestic product, is expected to show the economy expanded by a annual rate of 3.4%. That's the consensus among economists queried by Action Economics.

First-quarter growth ended up coming in at a decent annualized rate of 3.8%, after a fourth-quarter increase of 3.8%. The contours of the second-quarter report will likely show consumer spending once again led the way. A smaller than expected trade gap during the second quarter should also be a positive for growth. The lower trade deficits were the likely outcome a large slowdown in inventory growth. After making a sizeable contribution to GDP in the first quarter, inventories probably were a negative factor in second-quarter growth. Based on the Commerce Dept. data, companies slowed their inventory building considerably in the second quarter.

EMPLOYMENT COST INDEX

Friday, Apr. 29, 8:30 a.m. EDT

The Labor Dept.'s second-quarter employment cost index, a measure of wages, salaries, and benefits paid by businesses, is expected grow 0.9% from the first quarter. That's the expectation of forecasters surveyed by Action Economics. In the first quarter of 2005, employers saw compensation costs rise 0.7%, after growing 0.8% in the final period of 2004 and 0.9% in the third quarter.

The breakdown between wage and benefits is important. Slowing wage growth appears to have leveled off after coming down over the past four years. In the third quarter of 2000, wages were up 4% from the same period a year ago but have been running at a pace of 2.4% over the past three periods. The Fed Chairman is keeping a close eye on changes in labor costs, particularly with respect to unit labor costs.

Benefits' costs slowed a bit in the first quarter. Compared with a year ago, benefits costs grew 5.9%, down from 6.9% in the fourth quarter and 6.8% in the third quarter of 2004.

CONSUMER SENTIMENT INDEX

Friday, July 29, 10 a.m. EDT

The University of Michigan's Survey Research Center will report to its final reading of consumer sentiment for June. The median estimate from Action Economics is a reading of 96.5, unchanged from the preliminary July result. The final June reading was 96, after easing to 86.9 May, from 87.7 in April.

According to the University of Michigan, consumers expected slower economic growth as a result of higher gasoline prices. But respondents still expressed more optimism about jobs.

CHICAGO PURCHASING MANAGERS SURVEY

Friday, July 29, 10 a.m. EDT

The Chicago-area purchasing managers' index of industrial activity in the Midwest probably improved slightly in July. The median forecast among economists polled by Action Economics is for a reading of 55%. The June headline reading was 53.6%, after a sharp decline in May to 54.1%, from 65.6% in April.

The new orders index declined. The new orders index fell to 56.5%, from 57.9% in May. It was the lowest since May of 2003. The backlogged orders reading for June was 45.3%, up slightly from 44.4% in May, but still down considerably from 52.4% in April. The readings below 50% indicate more respondents reported a decline in unfilled orders than those who reported a rise. By James Mehring


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