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Vital Signs: Testing the Softness

Just how weak was the second quarter? After the economy grew at an annualized rate of 5.6% in the first quarter, many economists believe growth could slow to a rate just below 3%. However, recent figures have pointed to improving conditions as the quarter came to a close.

This week's string of economic reports will help the markets get a better feel for how soft second-quarter economic growth turned out to be and where the economy is headed for the second half of the year. The most important economic reports of the week will be June retail sales and May international trade.

The retail sales report will be used to gauge how much high gasoline prices are crimping consumers' desire to shop. So far, monthly chain store sales for June were mixed, although auto sales for the month did improve slightly. Housing related categories are a key area. The May figures showed a decline in furniture and building material sales, and both categories are on pace to post quarterly sales declines for the first time in over three years. With the housing market cooling and rebuilding efforts in the Gulf Coast region slowing, these categories could ease further in June.

The May trade deficit is expected to exceed the April gap of $63.4 billion. Based on the consensus estimate that May's trade gap will widen to $64.6 billion, it appears that trade will be a slight drag on second-quarter growth. However, economists do see export levels rising, after slipping in April. Economists will look beyond the headline number to see how exports of capital goods and industrial supplies have fared. These are the areas that improved in the first quarter, and should benefit the most from stronger capital investment abroad.

Business inventory numbers will also get some attention as economy watchers try to do the math on second-quarter gross domestic product. To end the week, the first look at July consumer confidence will shed more light on the mood of U.S. consumers as the second half of the year begins.

Here's the weekly economic calendar (from Action Economics).

Economic Reports

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