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US Week Ahead: Steady As She Goes

August 8th, 2009 Michael McDonough

On the economics front this week we have a rather light calendar compared to last week, but not without some significant releases.  The weeks starts out slow with no noteworthy releases on Monday, followed up by productivity and costs on Tuesday. The week closes with the hard hitting trifecta of July’s CPI, June’s Industrial Production, and August’s preliminary consumer sentiment release on Friday.  In the middle of the week we also have this month’s FOMC announcement, where despite early signs of a recovery, sustained weakness in the labor market makes it highly unlikely the FOMC will make any changes to its current policy stance. However, this meeting could help determine the fate of two of the Fed’s programs designed to bring liquidity back into the market; these include the TALF and treasury purchase program.  After last Friday’s better than anticipate labor report, the market will again be paying close attention to Thursday’s initial jobless claims release looking for further indications that the US labor market is on the long road to recovery.  We should also get a bit more insight into consumer behavior this week with the release of the wholesale trade data on Tuesday, and the much more closely watched retail sales data on Thursday.  We may have a relatively quiet week in terms of volume, but this week’s calendar is more about quality versus quantity.  Here is the entire calendar:

Monday August 10th:

None

Tuesday August 11th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a -0.2% decline in store sales over the previous week.

Productivity8:30AM: Productivity and Costs (Risk: Neutral, Market Reaction: Significant): Despite lay-offs and reduced capital expenditures increased productivity has been one of the few forces helping to support corporate profits.  Productivity will likely remain strong in 2Q09 with the current Bloomberg consensus forecast indicating an increment of 5.5% for productivity and a decline of -2.8% for unit labor cost.  The fact that during 2Q09 the market experienced a 1.6% drop in non-farm value added compared to a larger decline of 6.5% in hours work should help bolster the index.

10:00AM: Wholesale Trade (Risk: Negative, Market Reaction: Marginal): This indicator measure the level of inventories and sales by US wholesalers.  This indicator is can be a good forward looking indicator toward trends in consumer behavior as stores would like to ramp up inventories prior to any anticipated increment in sales.  However, continued weakness in the labor market coupled with no indication of a rebound in consumer spending this index could face some negative pressure.  It is also important to note that this data is on a two month lag.

Wednesday August 12th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week the overall index rose 4.4%; while the refinance index rose 7.2% on the back of relatively low mortgage rates.

Trade8:30AM: International Trade (Risk: Neutral, Market Reaction: Significant): The current Bloomberg consensus forecast for June’s US trade balance is –US$28.5bn compared to –US26.0bn a month prior.  Higher energy prices should lead to an increase in the value of US imports, which should be partially offset by higher exports stemming from a weaker dollar during the month.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector.  Last week this report showed an increase of inventories of 1.7mn barrels after rising 5.2mn a week prior. Please see this brief discussion piece on FiatEconomics.com describing the potential effect of inventories on long-term oil prices.

2:00PM: Treasury Budget (Risk: Neutral, Market Reaction: Moderate): The current Bloomberg consensus for July’s US government budget deficit is –US$180.0bn compared to –US$94.3bn a month prior.  Large deficits have led to record levels of US treasuries auctions, which in some instances have placed downward pressure on rates and in a few cases the growing deficit has even sparked some mild concerns over the US’s risk free credit rating.

2:15PM: FOMC Announcement (Risk: Neutral, Market Reaction: Significant): Despite early signs of an economic recovery, weakness in the labor market makes it highly unlikely the FOMC will make any changes to current monetary policy. But, it will be important to watch for any changes in the FOMC statement indicating a potential shift in the Fed’s bias.  The primary issue at this meeting will be whether or not to extend the Feds Term Asset Backed Securities Loan Facility (TALF), which was designed to help bolster consumer and business lending markets.  But, some market participants have been critical on this program’s effectiveness. There will likely also be some discussion over whether or not to continue a program to purchase long and medium-term treasuries set to expire in September.

Thursday August 13th:

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 34K to 550K last week as it seems all of the effects from the erroneous seasonal adjustment factors seems to be washed out.  Claims should continue to improve as the month’s progress, but likely won’t reach comfortable levels until next year.  The current Bloomberg consensus for this week’s initial claims number is 543K.

Retail Sales8:30AM: Retail Sales (Risk: Neutral, Market Reaction: Significant): Excluding auto sales, which have risen quite sharply due to the government’s ‘cash for clunkers’ initiative, retail sales should finish the month relatively weak.  The current Bloomberg consensus for July’s retail sales is +0.8%, however, this number includes auto sales.  Ex-autos the number stands at +0.1%, and this could face some negative pressure.  Continued weakness in the labor market combined with what is likely to be a lackluster back to school season will continue to depress this index.   In fact, a recent survey by the National Retail Federation found that families this year will be spending on average US$549 versus US$594 last year on back to school goods.

8:30AM: Import and Export Prices (Risk: Neutral, Market Reaction: Marginal): Energy prices declined in July, which will likely place some downward pressure on the import price index.  But, this effect could be at least partially offset by price increases for industrial equipment and food.  Overall this index will likely show a modest decline for the month.

10:00AM: Business Inventories (Risk: Neutral, Market Reaction: Moderate): June’s business inventories will probably continue to fall, albeit at a slower pace.  The current Bloomberg consensus forecast for the index is a decline of -0.8%.  This is on the back of a drop of -0.8% for factory inventories during the same month.  This would be the 10th straight month business inventories have fallen.  The good news is that at some point inventories will need to be replenished, which could eventually generate a spike in manufacturing.

10:00AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  Last week the Fed’s balance sheet moved back below continued to decline falling to US$1.974trn from US$1.985trn a week prior.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to helping to control interest rates.

Friday August 14th:

8:30AM: Consumer Price Index (Risk: Neutral, Market Reaction: Significant): As with the import price index, a decline in energy prices partially offset by higher food prices probably helped to reduce pricing pressure for July’s headline CPI.  But, we should see a slightly higher gain in the core CPI number given price pressure from a number of goods including automobiles.  The current Bloomberg consensus forecast is for a CPI and Core CPI of 0.1% and 0.2%, respectively.

IP9:15AM: Industrial Production (Risk: Neutral, Market Reaction: Very Significant): Increased motor vehicle production should help support June’s industrial production number, which could also face some negative pressure from continued weakness in the mining sector. The current Bloomberg consensus forecast for June’s IP is a gain 0.6%.

10:00AM: Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): Slight improvements in job losses experienced over the last several weeks combined with rising equity markets should lead to a marginally higher outcome to Augusts’ preliminary consumer sentiment index.  The current Bloomberg consensus forecast for this release is 68.5 compared to a previous reading of 66.0.

Enjoy the Weekend!

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  1. August 8th, 2009 at 12:31 | #1

    Nice writing style. I look forward to reading more in the future.

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