Vital Signs: Will Companies Keep Spending?

The industrial production and international trade figures will help gauge the health of business spending. Also on tap: consumer prices, retail sales, and consumer sentiment

The strength of the U.S. economy in coming months hinges greatly on business spending. This week's wide range of economic data will give investors a fairly good picture of what businesses are doing both at home and abroad.

The August data on industrial production and the July international trade figures will be the key reports in gauging the health of business spending. Industrial output is expected to grow modestly, but the most important parts of the report are likely to be business equipment output and capacity utilization. Production of machinery, computers, and other business equipment has grown by over 12% in the 12 months through July. The sharp rise in demand has lifted utilization rates to levels that are forcing manufacturers to raise their own investment spending in order to increase capacity.

The greater demand for industrial goods is also coming from abroad. The July foreign trade figures are expected to show another rise in exports. Increased capital spending in Europe and Asia and a softer U.S. dollar has translated into strong demand for U.S. made capital goods.

The July figures on business inventories will show whether manufacturers and businesses are getting ahead of actual demand in light of the weaker housing market and high, albeit falling, energy prices. If unwanted inventories pile up, companies would have to cut back their ordering.

A lot of attention will also be cast on retail sales and consumer prices. Right now, consumers are the big economic wildcard. So far this quarter, there are reassuring signs that Americans are still flocking to the malls. Retreating gasoline prices may have something to do with that. Receding energy prices should leave the headline consumer inflation number looking quite benign, although more attention should be paid to the core measure that leaves out energy and food categories.

Here's the weekly economic calendar, from Action Economics.

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