Vital Signs for the Week of Aug. 8


Another Federal Reserve monetary policy meeting, another rate hike. When Alan Greenspan and other members of the Fed's policy committee meet on Aug. 9, economy-watchers expect a quarter-point hike, to 3.5%.

Besides the actual move to raise rates, the Fed will issue a post-meeting press release. There will be some assertions made in previous statements that could soon be tweaked. In the past three statements, the central bank has said it expects underlying inflationary pressures to remain well contained, especially in the longer-term horizon. However, the latest revisions to gross domestic product and personal consumption data showed inflation was stronger last year and again in the first quarter of 2005 than previously thought.

Strong productivity has been relied upon to help keep a lid on inflation. But economists expect the second-quarter data, also out on Aug. 9, to show further deceleration. While an annualized rate of 1.5% is still historically decent, it's slower than the average pace of 2.9% over the past 10 years. The central bank may have to back away from its usage of "robust" productivity gains used since the June, 2003 statement and revert to something closer to an earlier characterization of "ongoing growth."

The significance of any change in language is a possible change in the Fed's view of how long it will have to raise rates. Based on the rest of the economic data coming out this week, the risk is skewed to more rate hikes than forecast just a couple months ago.

July retail sales reported by the Commerce Dept. are expected to come in quite strong as hot weather helped boost demand for seasonal items and the employee discount programs by the major U.S. automakers lured more consumers into showrooms.

Business inventory figures for June should reflect the large-scale downward adjustment that Corporate America made in the second quarter. Economic uncertainty and slightly slower growth led many companies, particularly manufacturers, to put the brakes on refilling warehouses. Now that the economy appears to be picking up again, inventory levels are at more comfortable levels, and business spending looks set to improve.

Here's the weekly economic calendar.

EARNINGS REPORTS

Monday, Aug. 8

CenterPoint Energy, Delphi, Dynegy, Fluor, Pactiv, Visteon, and more.

MEETING OF NOTE

Tuesday, Aug. 9

The Federal Reserve's Federal Open Market Committee meets to discuss monetary policy. An announcement by the Fed will come at 2:15 p.m. Every economist polled by Action Economics expects another 25 basis point hike in the federal funds rate, to 3.5%.

EARNINGS REPORTS

Tuesday, Aug. 9

Cisco Systems, Clear Channel Communications, Edison International, El Paso, King Pharmaceuticals, May Department Stores, Progressive, Walt Disney, and more.

ICSC-UBS STORE SALES

Tuesday, August 9, 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 period ending Aug. 6. During the weed ended July 30, sales grew 0.9%, after a 0.4% increase in the previous period.

PRODUCTIVITY AND COSTS

Tuesday, Aug. 9, 8:30 a.m. EDT

Productivity growth in the second quarter, measured as output per hour worked, most likely slowed to an annualized growth rate of 2%. That's the median forecast of economists surveyed by Action Economics. In the first quarter, nonfarm productivity was clocked at an annualized rate of 2.9%, after a fourth-quarter increase of 2.3%, and a third-quarter gain of 0.9%. Productivity growth for the full year of 2004 was 4%, after a 4.3% improvement during 2003.

Second-quarter unit labor costs probably rose at an annualized clip of 3%, following a 3.3% gain in the first quarter, and a 7.7% jump in the fourth quarter. Costs inched up by 0.8% for all of 2004, after falling in both 2002 and 2003. A gradual deceleration in productivity growth and rising wages are combining to put pressure on unit labor costs.

Unit labor costs may pick up speed during the remainder of the year. Some industries are finding it difficult to hire qualified workers. What's more, an unemployment rate that has fallen to 5%, from 5.5% a year ago, does indicate that the pool of available labor is steadily shrinking.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Aug. 9, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the first fiscal week of August, ended Aug. 6. For the entire month of July, sales were up 0.3%, after posting an increase of 0.5% in June.

WHOLESALE SALES AND INVENTORIES

Tuesday, Aug. 9, 10 a.m. EDT

Wholesale sales probably jumped in June. The median forecast of economists queried by Action Economics is for a monthly gain of 0.6%. In May, wholesale sales stalled as a jump in auto sales was offset by lower petroleum sales and declines in sales of electrical equipment and machinery. The Commerce Dept. report tallies wholesale sales by value and not volume. Given the same volume of sales, lower oil prices would have a negative effect on the total. April sales jumped 1.3%.

Inventories edged up 0.1% in May, following a 0.7% increase during April, after 0.6% increases in both March and February. With inventories barely moving up in May and sales holding steady, the inventory-to-sales ratio held to 1.18 for a second straight month.

EARNINGS REPORTS

Wednesday, Aug. 10

Federated Department Stores, and more.

MORTGAGE APPLICATIONS

Wednesday, Aug. 10, 7 a.m. EDT

The Mortgage Bankers Assn. releases its numbers on mortgage applications for both home buying and refinancing for the week ending Aug. 5. The purchase index stood at 494.5 over the week ended July 29, up from 485.1 in the previous week, and 488.7 in the week ended July 15. However, the four-week moving average, fell to 489.3, from 495.9 for the week ended July 22.

The average rate on a conventional 30-year fixed mortgage, according to HSH Associates, moved up to 5.92% during the week ended July 29. For the week ended July 22, the mortgage rate stood at 5.9%.

The MBA's refi index slipped a little in the latest week. In the period of July 29, the index was 2250.3, after falling to 2320.3 in the week ended July 22, from 2618.2 in the week ended July 15. The four-week moving average also fell. In the week ended July 29, the average stood at 2435.8, from 2570.3 for the period ended July 22.

FEDERAL BUDGET

Wednesday, Aug. 10, 2 p.m. EDT

The federal government is forecast to have run a budget deficit of $58 billion in July. That's the consensus among economists polled by Action Economics. In June, the government ran a $22.4 billion surplus. Last year, the July shortfall was $69.2 billion. Larger income tax revenues have helped keep the budget deficit through the first nine months of the fiscal year at $249.8 billion. Through June of 2004, the deficit stood at $327.2 billion.

EARNINGS REPORTS

Thursday, Aug. 11

Analog Devices, Dell, Hospira, Kohl's, Target, and more.

JOBLESS CLAIMS

Thursday, Aug. 11, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended Aug. 6 most likely rose to 315,000. Jobless claims came in at 312,000 for the week ended July 30, from 313,000 in the week ended July 23, and 305,000 in the prior week.

The four-week moving average was trimmed to 316,900, from 319,000 for the week ended July 23. Continuing jobless claims for the week ended July 23 moved up to 2.58 million, from 2.6 million in the previous week.

RETAIL SALES

Thursday, Aug. 11, 8:30 a.m. EDT

Retail sales remained strong in July, according to Action Economics. The consensus forecast calls for a 2% gain in July. Auto sales were a big positive factor. July auto sales hit an annual pace of 20.9 million vehicles, after a June pace of 17.5 million.

Overall retail sales rose 1.7% in June, after May sales slipped 0.3%, following a 1.8% jump in April.

Excluding autos, economists expect a 0.7% increase for July. June sales excluding autos were up 0.7%, and were flat in May.

BUSINESS INVENTORIES

Thursday, Aug. 11, 8:30 a.m. EDT

June inventories held by manufacturers, wholesalers, and retailers are forecast to have edged up by 0.1%. That's the median forecast by economists surveyed by Action Economics. Factory inventories were already reported to have held steady in June. Total business inventories nudged up by 0.1% in May, after a 0.2% rise during April.

An inventory adjustment, especially by manufacturers, accounts for the slowdown in recent months. A slower pace of economic growth and uncertainly regarding oil prices left businesses feeling uncomfortable with their inventory levels at the end of the first quarter. Inventories are perceived to be at better levels now. That bodes well for factory production and overall business activity during the second half of the year.

INTERNATIONAL TRADE

Friday, August 12, 8:30 a.m. EDT

The monthly U.S. trade deficit probably widened a little in June. The consensus estimate is a deficit for goods and services of $57.1 billion. The May trade gap was $55.3 billion, after a trade gap of $56.9 billion in April.

In May exports edged higher, while imports fell slightly. The decline in imports was led by big retreats in oil and natural gas. The declines were due in large part to lower prices for the energy goods. In May, crude oil drifted between $50 and $54 per barrel. Natural gas hung around $6.50 per BTU during the month. In June and July, prices of both energy products have risen considerably, pointing to larger trade deficits for those two months.

IMPORT AND EXPORT PRICES

Friday, Aug. 12, 8:30 a.m. EDT

Import prices probably rose 0.6% in July. That's the median estimate of economists queried by Action Economics.

The June index showed a 1% jump in import prices, after a 1% fall in May. Excluding petroleum, import prices were down 0.4% in June, and were off just 0.2% in May. Overall, import prices were up 7% from a year ago in June after slowing to an annual pace of 5.7% in May. Strip out oil and the import prices were up 2.1% from a year ago in May. After hitting a yearly pace of 3.7% in December of 2004, import prices have been on a downward trend.

In June, prices of capital goods were flat compared with a year ago. This marks the first time since 1996 that the import price index tracking capital goods, such as tractors and machinery, has not been below its year ago level. The falling dollar in 2003 and 2004 may have played a role in the reversal of this trend, as a weaker greenback makes foreign goods more expensive in dollar terms. However, the recent rejuvenation of the dollar along with strong competition may cause capital goods prices to fall once again.

July export prices probably were unchanged, after holding steady in June, slipping 0.2% in May and rising 0.5% in April. Excluding the 1.2% jump in prices for agricultural goods, monthly export prices were off 0.1% in June. Compared with a year ago, export prices were up 3.2% in June, after slowing to a yearly pace of 2.5% in May, from 3.1% in April.

CONSUMER SENTIMENT INDEX

Friday, Aug. 12, 9:45 a.m. EDT

The University of Michigan's Survey Research Center will report its preliminary reading of consumer sentiment for August. The consensus estimate from economists queried by Action Economics is for a slight decline in the index, to 96. The final July index showed a small gain in consumer confidence, improving to 96.5, from 96 in June, and 86.9 in May.

In July, both the current conditions and consumer expectations posted small gains. The resilient July readings are especially impressive given the elevated oil and gasoline prices during July. By Jim Cooper


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