Key U.S. Data Releases and Events

In other releases, core producer prices are expected to have risen by 0.3% in June, while core consumer prices moved up 0.2%. Industrial production should rebound in June, as utility output moves back up to more seasonable levels and the automotive sector gets a slight kick from the end of the American Axle strike. Retail sales are expected to jump 0.8% in June, but adjusted for inflation, the gain ultimately will be modest. Finally, housing starts and permits are expected to decline in June, but the depth of the monthly corrections should diminish over time.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, July 15 – Producer Price Index (Jun.)

Total
Global Insight: +1.8%
Consensus: +1.3%
Last Actual: +1.4% (May)

Core
Global Insight: +0.3%
Consensus: +0.3%
Last Actual: +0.2% (May)

What to Look For

• Top-level prices likely surged 1.8% in June.
• Core prices to be up 0.3%.

Implications

We expect producer prices leapt 1.8% in June, propelled by surging energy prices. As in the previous month, gasoline prices will lead the charge. Food prices should also push markedly higher. Excluding food and energy, we expect "core" producer prices to reflect some of the recent hikes in energy and commodity costs and rise 0.3%, following a 0.2% increase in the previous month.

Tuesday, July 15 – Retail Sales (Jun.)

Total
Global Insight: +0.8%
Consensus: +0.4%
Last Actual: +1.0% (May)

Less Autos
Global Insight: +1.5%
Consensus: +0.9%
Last Actual: +1.2% (May)

What to Look For

• Total retail sales to be up 0.8% in June.
• Sales excluding autos likely rose 1.5%.

Implications

Retail sales will probably show another strong advance in June, rising 0.8% in total and 1.5% excluding autos. The economic-stimulus payments will boost spending again, as they did in May, while sharply higher gasoline prices raise spending at gasoline stations. The main drag on the headline reading will come from auto sales, which were down sharply in June. After adjusting for inflation, though, real spending likely ekes out only a slight gain, at best. The worry for the future is that sales will fall back, in line with increasingly gloomy fundamentals, once the stimulus effect fades.

Tuesday, July 15, and Wednesday, July 16 – Fed Chairman Testimony and Minutes

Federal Reserve chairman Ben Bernanke will provide semi-annual testimony to Congress on July 15–16, and the FOMC minutes from the June 24–25 meeting will be released on July 16. The chairman's testimony will provide a crucial lens on how the Fed sees the unfolding of economic growth, inflation, and the crisis in the financial markets. In view of the recent intensification of pressures in the housing, mortgage market, and financial sectors, this testimony becomes hugely important and will likely overshadow the minutes of the FOMC meeting at the end of June, which amazingly are now a little outdated. While some recent comments from Fed officials have taken a hawkish tone on inflation pressures, we expect the chairman to soften this message in view of ongoing severe pressures on the economy and the financial system. In addition, recent threats to the viability of the GSEs and other major financial intermediaries will most certainly occupy center stage in the Q&A after the formal testimony.

Wednesday, July 16 – Consumer Price Index (Jun.)

Total
Global Insight: +0.9%
Consensus: +0.7%
Last Actual: +0.6% (May)

Core
Global Insight: +0.2%
Consensus: +0.2%
Last Actual: +0.2% (May)

What to Look For

• Top-level prices likely rose 0.9%.
• Core prices up by 0.2%.

Implications

We expect consumer prices to jump 0.9% in June, fueled by a sharp rise in gasoline prices. Food prices will also pressure the top line. The "core" index (excluding food and energy) will be carefully dissected by the Fed for signs that surging energy and other commodity costs are passing through to consumer prices at large. We expect core prices to rise 0.2% for the second straight month—but a June acceleration to 0.3% would not be a shocker.

Wednesday, July 16 – Industrial Production (Jun.)

Global Insight: +0.5%
Consensus: 0.0%
Last Actual: -0.2% (May)

What to Look For

• Industrial production rose 0.5% last month.
• Automotive sector to see a post-strike rebound.

Implications

Industrial production should get a major kick from electricity production (which will probably rise almost 3%), thanks to a mid-month heat wave that boosted demand, enough to lift overall industrial output by 0.5%. The automotive sector also provides a kick from a post-strike rebound, but this will not return output to pre-strike levels, since sales are dreadful and excess truck stocks overhang this beleaguered industry. Core manufacturing probably had yet another mediocre month, and a slight decline is expected.

Thursday, July 17 – Housing Starts and Building Permits (Jun.)

Starts
Global Insight: 0.952 Mil.
Consensus: 0.960 Mil.
Last Actual: 0.975 Mil. (May)

Permits
Global Insight: 0.939 Mil.
Consensus: 0.965 Mil.
Last Actual: 0.978 Mil. (May)

What to Look For

• Housing starts to decline by 2.4%.
• Building permits to be off 4.0%.

Implications

The number of unsold homes on the market today is at or near a record high. Reducing inventories will require that housing prices drop much further, and that builders refrain from putting up new homes. Our view is that housing starts will drop more than 15% from current levels, before turning around late this year. For June, we project that housing starts fell to 0.952 million units and permits dropped to 0.939 million units. Although housing starts are still falling, they are doing so at a slower rate than in recent months. This is why construction spending on single-family homes fell just 3.4% in May, the second-smallest drop in 10 months. Going forward, the declines will continue to shrink, and housing will become a progressively smaller drag on real GDP growth.