Key U.S. Data Releases and Events

The key event this week will be the FOMC announcement (August 5). The Fed will keep the federal funds rate at 2.00%. Going forward, the Fed is stuck on hold, trapped between a weak economy on one side and high headline inflation on the other.

The personal income and consumption release (August 4) will show that personal income was unchanged in June, but that reflects the impact of economic stimulus payments, which gave May's numbers a gigantic boost. Nominal consumer spending will increase 0.6%, but higher energy prices will erode these gains, and real spending will drop 0.2%.

KEY U.S. DATA RELEASES THIS WEEK

Monday, August 4 – Personal Income, Consumption, and Prices (Jun.)

Personal Consumption, Nominal
Global Insight: 0.6%
Consensus: 0.4%
Last Actual: 0.8% (May)

Personal Consumption, Real
Global Insight: -0.2%
Last Actual: 0.4% (May)

Core PCE Price Index
Global Insight: 0.2%
Consensus: 0.2%
Last Actual: 0.1% (May)

Personal Income
Global Insight: 0.0%
Consensus: -0.2%
Last Actual: 1.9% (May)

What to Look For

• No change in personal income.
• Nominal consumer spending to rise by 0.6%.
• Higher energy prices will erode these gains, resulting in a drop in real spending.
• Core PCE deflator to rise by 0.2% (or 2.3% year-over-year).

Implications

We are expecting the stimulus rebates to add about $12.5 billion (which annualizes to $150 billion) to transfer payments in June, down from May's contribution of $15.0 billion ($180 billion annualized). This drop will offset a small gain in wage and salary disbursements and another solid gain in rental income. Overall, for June, we are expecting no change in personal income.

Higher gasoline, fuel oil, and gas prices should boost the consumer spending growth numbers. These gains will be partly offset by light-vehicle sales, which fell to their lowest level since August 1993. Added together, we project that consumer spending rose 0.6% in June. Higher energy prices, however, will erode these gains, and we are expecting a 0.2% drop in real spending.

The tax rebates will keep spending up in the third quarter. But the economy is shedding jobs, and once the effects of the rebates wear off, spending will tail off, and likely drop in the fourth quarter of this year.

We expect the core PCE deflator to rise 0.2% in June. On a year-on-year basis, look for the core PCE to rise 2.3%, faster than the 2.1% rate announced for each of the previous three months. Based on the quarterly national income figures announced Friday, these recent monthly figures are likely to be revised up. Given the recent commodity price boom, the slight drift further from the top of the Federal Reserve's 1.5–2.0% will be largely anticipated, and should therefore not affect inflation psychology adversely.

Tuesday, August 5 – ISM Nonmanufacturing Index (Jul.)

Global Insight: 48.7
Consensus: 48.8
Last Actual: 48.2 (May)

What to Look For

• The ISM composite index for services is expected to be broadly unchanged, at about 48.7 in July.
• Business activity is expected to track just under 50, while the employment index will offer a technical rebound, but also remain well below 50.

Implications

The services sector remains in a slight contractionary mode, as the financial sector continues to shed workers and the demand for freight continues to slide downward as production schedules have been shaved back.

Tuesday, August 5 – FOMC Rate Decision

Global Insight: 2.00%
Consensus: 2.00%
Last Actual: 2.00%

What to Look For

We expect the FOMC to vote for unchanged rates on August 5.

Implications

The text of the press release will be very similar to the June 25 press release (with at least one dissenting vote in favor of higher rates). Expect a little more emphasis on the fragility of the financial system. Another key point to watch will be whether the Fed explicitly mentions the recent sharp decline in oil prices as indicating some relief ahead on the pipeline inflation problem.

Friday, August 8 – Productivity, preliminary (percent change, Q2)

Nonfarm Business Productivity

Global Insight: 1.8%
Consensus: 2.5%
Last Actual: 2.6% (Q1, final)

Unit Labor Costs

Global Insight: 1.2%
Consensus: 1.4%
Last Actual: 2.2% (Q1, final)

What to Look For

• Productivity to advance 1.8% in the second quarter.
• Unit labor costs to advance 1.2%.
• Downward revisions to both productivity growth and unit labor costs for 2005–07.

Implications

The productivity release will mainly be of historical interest. It will show that productivity advanced a moderate 1.8% in the second quarter. Productivity growth over 2005 and 2007 will be revised down because of July's annual NIPA revisions.

The revisions will show that annual productivity growth advanced less than 1.5% over 2005–07. This is very different from the 3.5% average over 2001–04.