Key U.S. Data Releases and Events

Reports next week should likely reinforce the picture of an economy that appears to be sliding like jelly through the fingers of the economic-stimulus payments. Retail sales are expected to have declined in July, while industrial production likely pulled back as well, thereby giving the third quarter an inauspicious start for both consumption and output. The June trade deficit likely got a kick upwards from higher oil prices and import volumes, while July top-level consumer prices should start to show signs of moderating on reduced upward pressure from gasoline prices.

The key question at this point is whether potentially lower gasoline prices in August and September—combined with expected very large sales incentive programs on 2008 models from the auto companies—will rescue real consumption growth the third quarter. Several key pieces need to fall into place for this to happen, so it looks like it could be a nail-biter.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, August 12 – Trade Balance (Jun.)

Global Insight: -$64.3 Billion
Consensus: -$61.9 Billion
Last Actual: -$59.8 Billion (May)

What to Look For

• Deficit expected to widen by $4.5 billion, to $64.3 billion, entirely due to a higher oil import bill.

Implications

Much higher prices and a moderate increase in volumes likely raised the imported oil bill by about $5 billion. We expect little change in the non-oil deficit. Foreign trade was a crucial support for GDP in the second quarter, with a combination of rising exports and falling imports adding 2.4 percentage points to growth. In coming months, export results will be watched closely to see if the slowdowns increasingly evident in Europe and Japan begin to hurt export growth.

Wednesday, August 13 – Retail Sales (Jul.)

Total
Global Insight: -0.3%
Consensus: -0.1%
Last Actual: +0.1% (Jun.)

Less Autos
Global Insight: +0.5%
Consensus: +0.5%
Last Actual: +0.8% (Jun.)

What to Look For

• Overall sales fell 0.3% in July, dragged down by a slump in auto sales.
• Sales excluding autos likely up 0.5%.

Implications

Light-vehicle sales fell from an annual rate of 13.6 million units in June to 12.5 million in July, reflecting the impacts of tightening credit, high gasoline prices, falling household net worth, and declining employment. Excluding automotive dealers, retail sales climbed an estimated 0.5%, boosted by the spending of tax rebates and still-high inflation. After adjusting for inflation, however, July real consumer spending is likely to see a fairly sizable negative, creating a fairly big hole to dig out of early in the third quarter. Real consumer spending is struggling to move forward despite the rebate payments, as consumers socked away roughly 60% of the rebates in savings accounts during the second quarter, and seem very reluctant to spend much of those savings. That being said, recent and pending reductions in gasoline prices might prompt consumers to loosen their purse strings in August and September.

Thursday, August 14 – Consumer Price Index (Jul.)

Total
Global Insight: +0.5%
Consensus: +0.4%
Last Actual: +1.1% (Jun.)

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

What to Look For

• Top-level inflation likely moderated to 0.5%.
• Core inflation to ease slightly to 0.3%.

Implications

Consumer price inflation will moderate in July, with prices rising 0.5% in the wake of an excruciating 1.1% advance in the previous month. Most of the improvement will be due to a sharp deceleration in gasoline prices, but we also expect help from an attenuating food-price profile. Excluding food and energy, "core" consumer price gains probably decelerated in July, but only slightly. Although we look for a 0.2% rise, compared with the elevated 0.3% advance in the previous month, the unrounded figure will approach the 0.25% mark needed for the core rate to go down into the books as 0.3%. The Federal Reserve would, of course, much prefer the symbolic comfort provided by our 0.2% core forecast, coming as it would, following this week's decision to hold the federal funds rate steady, at 2.00%.

Friday, August 15 – Industrial Production (Jul.)

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

What to Look For

• Production will reverse part of its June gain.
• Auto output likely dropped.
• Utility output expected to plunge.

Implications

Auto output will probably begin a renewed decline after the technical rebound in June that reflected the settlement of the American Axle strike. But the major drag will be a reversal of last month's surge in electricity production. July was slightly warmer than normal, but June was massively so and utility production shot up 2.1% (up 2.9% in electricity). July should see much of those gains reversed. Core manufacturing had another weak month in July, with a 0.1% decline in hours worked. The overall output drop will trim capacity utilization. Despite relatively low inventories, output continues to slide downwards on weak final demand—especially for SUVs/light trucks, building materials, and home furnishings.

Friday, August 15 – Michigan Consumer Sentiment Index (Preliminary Aug.)

Global Insight: 61.0
Consensus: 62.0
Last Actual: 61.2 (final Jun.)

What to Look For

• Consumer sentiment expected to backslide in early August, after a late-July surge.

Implications

Consumer sentiment was pulled in different directions in early August, as gasoline prices fell below $4 per gallon, but job markets continued to weaken. As a result, the Reuters/University of Michigan consumer sentiment index is estimated at 61.0, essentially unchanged from its July average of 61.2. But this suggests a mild retreat from a late-July surge—consistent with the recent slide in the ABC News/Washington Post consumer comfort index.