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Economists have been hotly debating the possibilities of a 'V' shaped recovery and a double-dip recession. It is still too early to take a stance, given the confounding signals generated by the economic reports we have received thus far. The employment market is still bleeding despite the positive tidings we have received from the housing and manufacturing fronts. There has been no evidence of firms attempting to hire even as retrenchments continue.
Consumers are wary after they burnt their hands due to the excesses they indulged in. The extremely cautious stance of the consumer, who has been the pillar of strength for the economy, was clearly reflected by the consumer credit report for July, which showed a $21.6 billion drop in unsecured consumer loans. Going by recent economic evidence, it is less likely that consumer spending rebounds in the next several years.
According to FTN Financial, consumers are likely to remain passive participants in the economy this time around. The firm believes that the huge drop in consumer credit in July and anecdotal reports of another drop in mortgage debt in the second quarter suggest that consumers would take the savings rate even higher. Consequently, the economy may need more stimulus along with a prolonged low interest rate environment.
That said last week, a report showed that the preliminary Reuters/University of Michigan's consumer sentiment index rose to 70.2 in September from 65.7 in August. While the current conditions index rose 5.2 points to 71.8, the outlook index increased by 4.2 points to 69.2.
Meanwhile, the Beige Book released by the Federal Reserve said that economic activity continued to stabilize in the summer months, with five districts reporting an improvement, one district terming conditions as having firmed and five districts reporting more stable conditions. Only one district reported declining activity, although it suggested that the decline has moderated. Manufacturing conditions were said to be improving, aided by the automotive, high-tech and pharmaceuticals sectors.
Commercial real estate activity was reported to be weak, while housing conditions at the low end of the market seem to be improving. Credit conditions were tight and the labor market continued to be weak, although the hiring of temporary workers is picking up.
A report released by the Labor Department showed that import prices rose 2% month-over-month in August, with the increase reflecting higher energy prices. Excluding fuels, the increase in import prices was merely 0.4%. According to Peter Boockvar from Miller Tabak, imported inflation will become a serious concern if the dollar continues to weaken, rendering the costs of imported goods expensive.
At the same time, the Commerce Department said the trade deficit widened to $32 billion in July, with the wider deficit reflecting a faster rate of increase in imports than the exports. The real deficit, which is used for calculating GDP, widened by about $3 billion to $38.8 billion.
At the same time, the Commerce Department said wholesale inventories at the end of July fell a bigger-than-expected 1.4% compared to expectations for a 1% drop. On top of that, June reading was revised lower by four-tenths of a percentage. The auto sector saw a 2% depletion in inventories.
The results of the Treasury's 3-year note auction were fairly positive, with the yield at 1.487% and the bid-to-cover ratio at 3.02, its best since November 2008. The level of indirect bidders accounted for 54.2% of the total. The 30-year old bond auction was also encouraging, with the yield coming in at 4.238% and the bid-to-cover ratio at 2.92.
After a week of relative calm, traders are likely to be flooded with a spate of economic data, which could help them gain more clarity on the economy's course. The Commerce Department's retail sales report for August, the results of the New York Federal Reserve's and Philadelphia Federal Reserve's manufacturing surveys for September and the Federal Reserve's industrial production report for August may be closely watched by traders.
Additionally, a couple of housing market reports scheduled to be released in the week may also be on the traders' radar. The Commerce Department is said to release the housing starts report for August and the National Association of Homebuilders is due to release the housing market index for September. Also on tap are the August producer and consumer price inflation reports, the Commerce Department's business inventories report for July, speeches by Fed officials and the regularly scheduled weekly jobless claims and crude oil inventory reports.
Retail sales are likely to continue to benefit from the cash-for-clunker program in August. That said, retail sales excluding autos is the number that should be watched to know the pulse of consumers, as the temporary benefit from the cash-for-clunker program may be missing in the coming months due to the expiry of the program. The August reading is also likely to have received some support from back-to-school sales.
Industrial production is also likely to have received support from autos and therefore, it may rise for a second straight month. The ISM's manufacturing index rose above the '50' cut-off level, reflecting strong auto production. This bodes well for industrial output, although utility output may serve as a drag, given the unseasonably cool weather that may have reduced demand for air conditioning.
Recent housing market data have shown an increase in builder confidence and a reduction in new home inventory levels. All these bode well for housing starts, which remain on track for another month of gain or a flat performance following the steep correction they have undergone in the recent down cycle.
Monday
Federal Reserve Board Governor Elizabeth Duke is due to speak on regulatory reform at an AICPA National Banking Conference in Washington at 8:35 AM ET. Richmond Federal Reserve Bank President Jeffrey Lacker is scheduled to addresses the Risk Management Association's Charlotte Area Chapter on financial regulation in Charlotte at North Carolina at 12:30 PM ET. Also scheduled to speak on the day is the San Francisco Federal Reserve President Janet Yellen, who will be addressing the Certified Financial Analysts of San Francisco at 3:50 PM ET.
Tuesday
The U.S. Labor Department is scheduled to release its report on the producer price index for August at 8:30 AM ET. The index measures the average change over time in the prices received by domestic producers of goods and services. Economists expect the headline index to show a 0.8% decline and the core index to show a 0.1% drop.
The producer price index fell 0.9% month-over-month in July. The decrease followed rises of 1.8% in June and 0.2% in May. Economists had estimated a mere 0.2% drop. Core producer prices eased 0.1% as opposed to expectations for a 0.1% increase.
Food prices fell 1.5% compared to a 2.4% decline in energy prices. Deflationary trends also prevailed in the pipeline, as the intermediate food and energy prices fell 2% and 1.4%, respectively.
Retail sales of food and retail companies with one or more establishments that sell merchandise and associated services to final consumers are slated to be released at 8:30 AM ET. For August, economists estimate a 1.9% increase in the retail sales and a 0.4% climb in retail sales excluding autos.
In July, retail sales edged down 0.1% month-over-month and retail sales, excluding autos, declined a steeper 0.6%. For July, Economists estimated a 0.7% increase in the retail sales and a 0.1% climb in retail sales excluding autos.
The decline in the headline number reflected a 2.1% drop each in gasoline station sales and building material & garden equipment and supplies sales. On the other hand, motor vehicle and parts sales rose 2.4%.
The results of the New York Federal Reserve's empire state manufacturing survey, which elicits response from 200 manufacturing executives in New York state, is slated to be released at 8:30 AM ET. The headline general business conditions index for September is expected to come in at 15.
Manufacturing conditions improve notably in August. The business conditions index rose to 12.1 in August from -0.6 in July, marking the first positive reading since November 2007. The new orders and the shipments indexes rose for the second straight month, while the order backlogs index remained negative, although was the least negative since October 2008.
The Commerce Department is scheduled to release its business inventories report for July at 10 AM ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.8% decline in business inventories for the month.
Business inventories showed a bigger-than-expected 1.1% drop in the month of June. However, business sales rose 0.9%, resulting in an inventory to sales ratio of 1.38 in June compared to 1.26 in the year-ago period.
Wednesday
The consumer price index for August is scheduled to be released at 8:30 AM ET. The index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The consensus estimates call for a 0.3% increase in the headline consumer price index and a 0.1% rise in the core consumer price index that excludes food and energy.
Consumer prices remained unchanged in June compared to the previous month, in line with expectations. On an unadjusted basis, consumer prices showed a 2.1% drop.
Core prices, which exclude the volatile food and energy sectors, also rose in line with expectations, edging up 0.1% advanced 0.1% from the previous month. Food and beverage and housing costs were down 0.2% each, helping to offset the 0.6% increase in transportation costs.
The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for July at 9 AM ET.
The industrial production report of the Federal Reserve is due out at 9:15 AM ET. Economists estimate that industrial production rose 0.7% in August, while capacity utilization is expected to come in at 69.1%.
Industrial production rose for the first time in October 2008, rising 0.5% month-over-month in July, with the bulk of the gain coming from a 20.1% surge in auto production. Higher auto production propelled industrial production, which surged up 1%. If auto production is stripped off, manufacturing output was up a mere 0.2%. Capacity utilization edged up four-tenth of a percentage point to 68.5%. The unseasonably cool weather led to a 2.4% drop in utility output.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended September 11th at 10:30 AM ET.
In the week ended September 4th, crude oil stockpiles fell by 5.9 million barrels to 337.5 million barrels. Inventory levels were above the upper boundary of the average range.
However, gasoline inventories increased by 2.1 million barrels and remained above the upper limit of the average range. Distillate fuel stockpiles rose by 2 million barrels, remaining above the upper boundary of the average range. Refinery capacity utilization averaged 85.6% over the four weeks ended September 4th compared to 84.7% in the previous week.
The National Association of Homebuilders is scheduled to release the results of their survey on homebuilders' confidence at 1 PM ET.
In August, the index measuring builder confidence rose 1 point to 18 and is currently at its highest level since June 2008. The index measuring sales expectations in the next six months rose 4 points and the index of prospective buyer traffic increased 3 points, while the current sales conditions index remained unchanged.
Thursday
A report on housing starts, which refer to the number of privately-owned new homes on which construction has been started over some period, and building permits, which are the number of permits issued for new housing units each month, is slated to be released at 8:30 AM ET. Economists estimate housing starts of 580,000 for August.
Housing starts fell 1% month-over-month in July to 581,000 from an upwardly revised June estimate of 587,000. Economists had expected housing starts to have risen to 598,000 from the initially estimated reading of 582,000 for June.
Single-family starts rose 1.7%, while starts of buildings with five units or more were 80,000. Annually, housing starts slumped 37.7%. Building permits fell 1.8% month-over-month to 560,000.
The Labor Department is due to release its customary jobless claims report for the week ended September 12th at 8:30 AM ET. Economists expect a modest increase in claims to 555,000.
First time claims for unemployment declined in the week ended September 5th, with the decrease following an upward revision to previous week's initial jobless claims.
Jobless claims fell to 550,000 from the previous week's revised figure of 576,000. Economists had been expecting jobless claims to slip to 560,000 from the 570,000 originally reported for the previous week. The four-week average declined 2,750 to 570,000 and continuing claims for the week ended August 29th fell 159,000 to 6.09 million.
The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 AM ET. Economists expect the diffusion index of current activity to show a reading of 8 for September.
The region's business activity index rose to 4.2 in August from -7.5 in July. The reading marked the highest level since November 2007 and the first positive reading since October 2008. The new orders index rose 6 points to 4.2 and notwithstanding a 5 point-increase the backlog orders index was at -9.3. Suggesting that inventory correction may have been over, the inventories index rose to 0.3 from -15.4, while the employment index surged up 12.4 points to -12.9. The 6-month outlook index rose 5 points.
Friday
There are no important economic report due out on Friday.
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