Vital Signs for the Week of Aug. 29


Just when the U.S. economy gets going, it hits another speed bump. Before the price for a barrel of crude oil topped $67 per barrel, gasoline reached a nationwide average of $2.60 per gallon, and natural gas surged to within a penny of $10 per BTU, all signs pointed to second half growth of 4% on an annualized basis. This week's data will show some reasons to remain optimistic, but the negative risks to growth are increasing.

The labor market will be one of the keys to a strong second half performance for the economy. If oil prices do not pull back, it could finally cause consumers to adjust their spending patterns. However, if businesses remain confident enough to keep hiring, then the negative effects of higher energy costs will be mitigated by increased jobs and personal income.

Economists expect little let-up after the pleasantly surprising July job growth of 207,000 workers. The consensus call is for 190,000 new jobs in August and an overall rise in personal income during July of 0.5%.

More timely signs of how businesses and consumers are handling energy pressures will come in the form of the Institute for Supply Management's business activity indexes and the Conference Board's consumer confidence index. The ISM factory activity index has been showing a turnaround for manufacturers after a weak spring. The key indexes to look at will be new orders and inventories. Over the past two months, respondents have reported an upswing in orders while also paring back on unwanted inventories that built up earlier in the year. A reversal in the trend could indicate the onset of another soft patch.

The construction spending figures may also be important. Despite robust new home sales figures, there appears to be some easing in homebuilding. The Commerce Dept. figures have shown four straight months of falling private residential outlays, the longest such streak since the spring of 2000. The value of spending on homebuilding remains large, but the direction bears watching.

Overall, the underlying fundamentals of the U.S. economy have not changed much in the past month. However, soaring energy prices could once again cause the U.S. economy to fall short of expectations.

Here's the weekly economic calendar.

ICSC-UBS STORE SALES

Tuesday, Aug. 30, 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. 27. During the week ended Aug. 20, sales fell 0.3%, after a 0.2% decline in the previous period and a 0.8% drop during the week ended Aug. 6.

INSTINET REDBOOK RESEARCH STORE SALES

Tuesday, Aug. 30, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the fourth fiscal week of August, ended Aug. 27. During the first three fiscal weeks of the month, sales were off 0.9% compared with the same period in July. For the entire month of July, sales were up 0.3%.

MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS

Tuesday, Aug. 30, 10 a.m. EDT

Factory orders most likely retreated during the month of July. The consensus is for a 2.2% decline in July. In June, orders rose 1.4%, after a 4.2% leap in May.

The recently published data on durable goods orders showed a disappointing 4.9% tumble in July orders, after a 1.9% gain in June and a 7.3% surge during May. Some of the decline may just be payback for the solid gains posted during the past two months. Factory orders are fairly volatile. However, August figures will be important in order to determine whether companies were simply taking a break or if high oil prices and a new bout of economic uncertainty may be emerging.

CONSUMER CONFIDENCE INDEX

Tuesday, Aug. 30, 10 a.m. EDT

The Conference Board's August index of consumer confidence probably eased to 101.7. That's the median estimate of economists polled by Action Economics. In July, the index slipped to 103.2, after climbing to 106.2 in June, from 103.1 in May, and 97.5 for April.

June sentiment regarding jobs and business conditions ranged from essentially unchanged to slightly less upbeat. The July index levels were still indicating relatively upbeat consumer sentiment. However, the August report will provide some insight into how much record oil prices affected consumers during the month and their outlook for the rest of the year.

FOMC MINUTES

Tuesday, Aug. 30, 2 p.m. EDT

The Federal Reserve will release the minutes of the Open Market Committee meeting held on Aug. 9. As of this year the Fed releases the minutes three weeks after its monetary policy meeting. Minutes to the meeting were previously issued with a six-to-eight week lag.

The Fed's August post-meeting press release showed no change in the central bank's inflation assessment. While the Fed acknowledges that prices have picked up some this year, it still feels that inflation is not a long-term threat. Economists will scour the minutes to see how universally held this position is among the committee members. As Greenspan's term nears its end -- he's scheduled to step down early next year -- the minutes will help shed some light on what the next Fed Chairman will encounter.

MEETING OF NOTE

Wednesday, Aug. 31, 12:45 p.m. EDT

Federal Reserve Bank of Philadelphia President Anthony Santomero speaks about the U.S. economy before the Jewish Business Network at Temple University in Philadelphia.

EARNINGS REPORTS

Wednesday, Aug. 31

Tiffany & Co., and more.

MORTGAGE APPLICATIONS

Wednesday, Aug. 31, 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. 26. The purchase index moved back to 488.4 for the week of Aug. 19, from 499.3 in the previous period, and 498.8 during the week ended Aug. 5. The four-week moving average did post an increase, to 495.3, from 494.4 for the week ended Aug. 12.

The average rate on a conventional 30-year fixed mortgage, according to HSH Associates, eased to 5.97% during the week ended Aug. 19. For the week ended Aug. 12 the mortgage rate stood at 6.06%.

The MBA's refi index bounced back. In the period ended Aug. 19, the index came in at 2313.9, from 2285.5 in the prior week, and 2176.5 during the week ended Aug. 5. The four-week moving average edged lower. In the week ended Aug. 19, the average was 2256.6, down slightly from 2258.2 for the period ended Aug. 12.

GROSS DOMESTIC PRODUCT

Wednesday, Aug. 31, 8:30 a.m. EDT

The preliminary report on economic growth for the second quarter of 2005, measured by real gross domestic product, is expected to be 3.4%, the same as the advanced reading. 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 3.3%.

CHICAGO PURCHASING MANAGERS SURVEY

Wednesday, Aug. 31, 10 a.m. EDT

The Chicago-area purchasing managers' index of industrial activity in the Midwest probably cooled off a little in August. The median forecast among economists polled by Action Economics is for a reading of 61.5%. The July index zoomed up to 63.5%, after coming in at 53.6% for June, and 54.1% in May.

The surge in the overall index level was accompanied by big gains in the new orders, production, and order backlogs indexes. The new orders index jumped to 70.5%, from 57.8% for June. The backlogged orders level for July was 56.1%, after coming in below 50% for the prior two months. Readings below 50% indicate more respondents reported a decline in unfilled orders than those who reported a rise.

The July turnaround corresponded well with improved results from the national factory activity survey conducted by the Institute for Supply Management. The August surveys will provide an early sign of whether or not the leap in oil prices will choke off an expected second-half rebound in manufacturing activity.

EARNINGS REPORTS

Thursday, Sept. 1

Ciena, H&R Block, and more.

CHAIN STORE SALES

Thursday, Sept. 1

The International Council of Shopping Centers will release its August same-store sales figures for major U.S. chain retailers. According to the ICSC, August sales most likely grew near 4% from the same period a year ago. In July, same-store sales grew 3.6 % from a year ago, while the June increase was 5.2%. August marks the start of the important back-to-school period for retailers.

VEHICLE SALES

Thursday, Sept. 1

The August extension of the employee pricing incentive strategy by the major U.S. auto makers did not pack the same punch as it did in July. According to WardsAuto.com, August sales are expected to come in at an annual rate of 16.7 million units. July sales of domestic and imported cars and light trucks zoomed to an annual rate of 20.9 million vehicles, after a June pace of 17.5 million. The risk from such deep discounting by the American producers is that sales over the rest of the year will flag because incentives simply brought forward buying decisions.

CONSTRUCTION SPENDING

Thursday, Sept. 1, 10 a.m. EDT

Construction outlays bounced back in July, according to Action Economics. The consensus forecast is for a 0.5% increase, on the heels of a 0.3% dip in June, and drops of 1.7% in May, 1% in April, and 0.2% in March. Compared with the same period a year ago, June construction outlays were up 7.9%.

Private construction spending fell for a fourth straight month in June. The 0.2% decline followed a 3.1% tumble in May. Residential construction is largely to blame for the decline. Outlays on private residential construction fell 0.4% in June, following a 3.4% drop in May. The retreat in residential construction spending contrasts somewhat with strong home sales and housing starts data from the past few months.

JOBLESS CLAIMS

Thursday, Sept. 1, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended Aug. 27 probably held at 315,000. Jobless claims came in at 315,000 for the week ended Aug. 20, after rising to 319,000 for the week ended Aug. 13, from 311,000 in the previous period.

The four-week moving average rose to 315,000, from 313,800 for the period ended Aug. 13. Continuing jobless claims for the week ended Aug. 13 edged down to 2.58 million, from 2.59 million in the previous week.

PERSONAL INCOME AND CONSUMER SPENDING

Thursday, Sept. 1, 8:30 a.m. EDT

July personal income kept growing at a healthy pace. Economists polled by Action Economics are forecasting a 0.5% increase for the month. In June, income rose 0.5%, after a 0.2% increase in May, and a 0.7% jump in April. Compared with a year ago, income was up 6.6% in June. Income has been outpacing inflation, allowing consumers to keep spending in the face of surging gasoline and energy costs.

Outlays on goods and services probably jumped 1% in July. Consumer spending in June climbed 0.8%, after holding steady in May and rising 0.8% in April. The yearly growth rate of consumer spending rebounded to 6.7% in June, after slowing to 5.7% for May, from 7.1% in April.

The personal consumption expenditures (PCE) price indexes are also an important set of data. This series of inflation measures is watched closely by the Federal Reserve. In June, the PCE slowed to an increase of 2.2% vs. the same month a year ago. In May, the index eased to 2.5%, after hitting 2.9% in April. Stripping out food and energy, the core PCE index was up 1.9% from a year ago. In both May and April, the yearly rise was 2%. The data show little cause for alarm when it comes to inflation.

ISM SURVEY

Thursday, Sept. 1, 10 a.m. EDT

The Institute for Supply Management's August index of industrial activity probably edged a little higher. The consensus estimate from Action Economics is for an August reading of 57%. The July ISM index improved to 56.6%, after rising to 53.8% for June, from 51.4% in May.

The new orders index climbed to 60.6% for July, from 57.2% in June, and to 51.7% in May. The index tracking orders from abroad also improved. The production index hit 61.2% in July, from 55.6% in June. A decline in the July backlog orders to 49% indicated that the acceleration in production likely outpaced increases in new orders. The inventories index also stood below the key 50% level, indicating a decline in manufacturers' inventory levels.

EMPLOYMENT REPORT

Friday, Sept. 2, 8:30 a.m. EDT

A repeat performance of the stellar July employment growth is not expected, but the August jobs data is forecast to be pretty decent. According to the consensus estimate from Action Economics, August payrolls increased by another 190,000 workers. In July, a better-than-expected 207,000 new jobs were created, after payrolls grew by 166,000 in June, and 126,000 in May. The jobless rate most likely held at 5.0% for a third straight month. Average hourly pay is expected to have increased 0.2%, after a surprising 0.4% increase for July. By James Mehring


Steve Ballmer, Power Forward
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