2010.09.1306:04:00UTC+00Economic Confidence On The Wane

Last week, a Labor Department report showed that jobless claims fell to 451,000 in the week ended September 4th from an upwardly revised deficit of 478,000 for the previous week. The four-week average fell to 478,000 from the previous week's 487,000. Does that signal that the labor market is improving? August's non-farm payrolls report showed that private employment increased by much more than expected. That said the unemployment rate obstinately held elevated at sub-10% levels.

It is well known fact that unless the employment market turns around, consumer spending, which is considered a pre-requisite for a sustainable recovery, is unlikely to show resurgence. The lack of clarity has led many to speculate about the possibility of further monetary and fiscal stimulus measures. Although the possibility of a double-dip recession is remote, growth is most likely to be sub-par through 2011. Against this backdrop, more stimulus announcements could at least build confidence among consumers and businesses.

The Fed's Beige Book showed that economic activity continued to grow in all of the 12 Federal Reserve Districts in the period from mid-July through the end of August. However, the report also revealed that there has been deceleration compared with preceding periods. Consumer spending was reported to be increasing despite cautious consumers, while travel and tourism was reported to be picking up in line with seasonal trends.

The Beige Book noted a slowdown in the expansion in the manufacturing sector, while also noting a slow down in home sales, with the Fed calling it a second round of weakness following the expiration of the homebuyers' tax credit. The commercial real estate market was qualified as showing some signs of stabilization despite demand remaining weak.

A separate report released by the Federal Reserve showed that consumer credit fell by $3.6 billion in July, less severe than the $5.2 billion drop expected by economists. Revolving credit tied to credit card loans declined by $4.4 billion, while non-revolving credit rose by $0.7 billion.

A Commerce Department report showed that the U.S. trade deficit fell to $42.8 billion in July from $49.8 billion in June. The narrowing of the deficit was aided by a 1.8% increase in exports and a 2.1% decline in imports. Exports received a shot in the arm from a surge in civilian aircraft shipments. The data suggests that trade will be less of a drag on growth in the third quarter.

Main Street is likely to be overwhelmed with many key data in the unfolding week after the lull of the past week. The Commerce Department's retail sales report, the weekly jobless claims report, the results of the New York and Philadelphia Federal Reserves' manufacturing surveys for September, the Reuters/University of Michigan's preliminary consumer sentiment index and the Federal Reserve's industrial production report are among the closely watch reports of the week.

Traders may also pay attention to the consumer and producer price inflation reports for August. The Commerce Department's business inventories report for July, the Treasury Budget for August and the treasury international capital flows data round up the other economic events of the week.

Retail sales for August may see a stabilizing influence form the higher gasoline prices, although auto sales could have fallen slightly, in line with the lower unit sales reported by the automakers.

Going by the results of the national and some regional manufacturing surveys, industrial production is expected to remain firm in August due to a more favorable assessment of production. Additionally, high summer temperatures may have driven up energy production, supporting the headline industrial production number.

Meanwhile, producer prices may have received a boost from higher food and metal prices in August. However, BMO Capital Markets expects the annual rate to ratchet back to 3.1%. The firm noted that sufficient slack exists in the industrial sector to keep a firm lid on finished goods prices. Inflation at the retail level could also be lifted by higher food prices.

Monday

The Treasury Budget, a monthly account of the surplus or deficit of the federal government is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists estimate a deficit of $95 billion for August.

Tuesday

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 0.3% increase in both retail sales and retail sales excluding autos.

Retail sales rose 0.4% month-over-month in July, slightly lesser than the 0.5% increase expected by economists. June's data was revised to show a more modest decline of 0.3%. Excluding auto sales, retail rose 0.2%, in line with expectations. On a year-over-year basis, retail sales and retail sales, excluding autos, were up 5.5% and 4.9%, respectively. The increase in the headline number was helped by a 1.6% rebound in auto sales, which reversed the 1.3% decline in the previous month. Gasoline sales climbed 2.3%, reversing the 2% drop in the previous month. However, most other categories showed sales declines.

Gasoline sales declined 2%, while sales decline at building material & garden equipment store sales slowed to 1.1% from the 9% drop in the previous month. On the other hand, sales at electronics & appliance stores, general merchandise stores and miscellaneous retail stores increased.

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% increase in business inventories for the month.

Wednesday

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 5.

The August survey showed that conditions among manufacturers in the region improved slightly. The headline general business conditions index for August rose 2 points to 7.1, while economists expected a reading of 7.5.

However, the sub-indexes were mostly negative. The new orders and shipments indexes declined below zero for the first time in more than a year. The unfilled orders index also was negative. The six-month outlook index weakened.

The export & import price indexes for August, which gives the changes in the prices of non-military goods and services traded between the U.S. and the rest of the world, are due out at 8:30 AM ET.

Import prices rose 0.2% month-over-month in July, reversing some of the 1.3% drop in the previous month. The rebound was supported by a 2.1% increase in fuel import prices, while non-fuel import prices continued to decline, dropping 0.3% in the month.

At the same time, export prices edged down by 0.2% in July following a revised 0.7% increase in the previous month. Agricultural export prices edged down 0.1%, while non-agricultural export prices slid 0.2%.

The industrial production report of the Federal Reserve is due out at 9:15 AM ET. Economists estimate 0.3% growth in industrial production for August, while capacity utilization is expected to come in at 75%.

In July, industrial output climbed a better than expected 1% month-over-month following a 0.1% drop in June. Auto production climbed 9.9%, lending support to the industrial production growth. Manufacturing output was up 0.6%. Capacity utilization rose to 74.8% from June's 74.1%.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended September 10th at 10:30 AM ET.

The oil inventory report for the week ended September 3rd showed that crude oil inventories fell by 1.9 million barrels to 359.9 million barrels but remained above the upper limit of the average range of the year.

Gasoline stockpiles fell by 0.2 million barrels, although remaining above the upper limit of the average range. Distillate fuel inventories decreased by 0.4 million barrels. Despite the decline, stockpiles were above the upper boundary of the average range. Refinery capacity utilization averaged 88.2% over the four-weeks ended September 3rd compared to 87% in the previous week.

Thursday

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 rise by 0.3% and the core producer price index to show 0.1% growth.

In July, producer prices rose 0.2% month-over-month in July. The increase was in line with expectations. The core producer price index climbed 0.3%, faster than the 0.1% expected by economists.

Food prices rose 0.7%, reversing some of the 2.2% drop in June, while energy prices slid 0.9%. In the pipeline, inflation continued to remain benign, with the core intermediate and crude good produces dipping 0.4% and 1.4%, respectively.

The Labor Department is due to release its customary jobless claims report for the week ended September 10th at 8:30 AM ET. Economists expect a decline in claims to 465,000.

First-time claims for unemployment benefits fell by much more than expected in the week ended September 4th. Initial jobless claims fell to 451,000 from the previous week's revised figure of 478,000. Economists had been expecting jobless claims to edge down to 470,000 from the 472,000 originally reported for the previous week

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for June at 9 AM ET.

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 0 for September.

The manufacturing index for August fell to -7.7 from 5.1 in July. Economists had expected an increase by the index to 7. Most sub-indexes, with the exception of the prices paid index, were negative. The new orders index declined 3 points to -7.1, the lowest level since June 2009, and the backlog orders index fell 3 points. The employment index came in at -2.7, down 4 points from the month-ago level and marking the weakest since October 2009. The inventories index fell a steep 15 points to -11.6.

Friday

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 0.2% increase in the consumer price index, while the core consumer price index that excludes food and energy is likely to have risen 0.1%.

In July, consumer prices for the month increased by a little more than economists had been anticipating. The consumer price index rose by 0.3% in July after edging down by 0.1% in June. Economists had been expecting the index to increase by 0.2%.

Core prices, which exclude food and energy prices, inched up by 0.1% in July following a 0.2% increase in the previous month. The modest increase in core prices met economist estimates.

The preliminary report of the Reuters/University of Michigan's consumer sentiment survey for September is scheduled to be released at 9.55 AM ET. The consumer sentiment index is expected to increase to 70 from August's 68.90.

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