The economy grew at a surprisingly strong 3.3% in the second quarter. Now it’s time to focus on the third quarter, and the initial signs are much less encouraging. The most important economic reports this week will offer readings on foreign trade, retail sales, and inflation. Those three areas—overseas demand, consumer spending, and prices—will be central to how the economy holds up during the second half.
First of all, foreign trade, which contributed 90% of the economy’s first-half growth, is unlikely to provide the same lift in the second half. July’s report on exports, imports, and the trade deficit will be an important signpost. Adjusted for prices, exports of goods and services soared 13.2% annually last quarter, as imports plunged 7.5%. Repeating those rates this quarter is unlikely, especially given the emerging slowdowns in the economies of several major U.S. trading partners.
Perhaps more important to the third quarter will be U.S. consumers. Households began the quarter on a dangerously weak trajectory, with declines in inflation-adjusted outlays in both June and July. If purchases held at the July level in August and September, consumer spending would drop 2.1% annually. As it is, outlays will have to post substantial increases in both months just to keep quarterly spending from declining for the first time since 1991. The week’s report on August retail sales will offer guidance on where outlays are headed.
The week also provides an update on inflation, both home-grown and imported. Producer prices of finished goods are expected to reverse their ominous upward course over the past three months. Economists are looking for them to decline, mainly reflecting lower gasoline prices, after having increased at an 18.9% annual rate from April through July, the fastest three-month rise since the 1970s. Core prices, which exclude energy and food, had also been rising at a faster pace, but they are expected to moderate as well.
For many businesses, prices further back in the production process, including the cost of crude materials and intermediate goods ready for final processing, are a big problem. Even outside of energy and food, prices for these inputs are rising three times faster than they were this time last year. Plus, the upward pressure on import prices remains intense, and it’s not just oil. Through July, prices of foreign-made goods excluding fuels are up 6.9% from a year ago. This time last year, they were rising at only a 2.4% annual pace. The August update for the producer price index will come on Sept. 12.
Higher costs are putting the squeeze on profit margins. For example, profits per unit of output among nonfinancial corporations fell to a four-year low in the second quarter. Based on reports from the National Federation of Independent Business, which will issue its August report on business activity this week, the vise on small businesses is getting especially tight. The danger for the economy in the second half is that companies, both big and small, will be forced to make deeper cuts in payrolls and capital spending in order to protect their margins.
Here’s the weekly economic calendar, from Action Economics.
|Reports||Date||Time||For||Median Estimate||Last Period|
|Consumer Credit ($bil)||Monday, Sept. 8||3 p.m.||July||$9.2||$14.3|
|Wholesale Trade Sales||Tuesday, Sept. 9||10 a.m.||July||0.9%||2.8%|
|Trade Balance ($bil)||Thursday, Sept. 11||8:30 a.m.||July||-$58.0||-$56.8|
|Exports of Goods & Services ($bil)||Thursday, Sept. 11||8:30 a.m.||July||$165.3||$164.4|
|Imports of Goods & Services ($bil)||Thursday, Sept. 11||8:30 a.m.||July||$223.9||$221.2|
|Export Price Index||Thursday, Sept. 11||8:30 a.m.||August||0.4%||1.4%|
|Import Price Index||Thursday, Sept. 11||8:30 a.m.||August||-1.0%||1.7%|
|Treasury Budget ($bil)||Thursday, Sept. 11||2 p.m.||July||-$104.0||-$102.8|
|Retail Sales||Friday, Sept. 12||8:30 a.m.||August||0.2%||-0.1%|
|Retail Sales excluding autos||Friday, Sept. 12||8:30 a.m.||August||0.1%||0.4%|
|Producer Price Index||Friday, Sept. 12||8:30 a.m.||August||-0.4%||1.2%|
|Producer Price Index, ex-food & energy||Friday, Sept. 12||8:30 a.m.||August||0.2%||0.7%|
|Business Inventories ($bil)||Friday, Sept. 12||10 a.m.||July||0.5%||0.7%|
|Consumer Sentiment Index (preliminary)||Friday, Sept. 12||9:55 a.m.||September||63.3||63.0|
Other Reports and Events:
SPEECH: Dallas Fed President Fisher - Monday, Sept. 8
Manpower Employment Survey - Tuesday, Sept. 9
ICSC-UBS Store Sales - Tuesday, Sept. 9
Johnson Redbook Weekly Store Sales - Tuesday, Sept. 9
NFIB Survey (Small Business) - Tuesday, Sept. 9
Pending Home Sales - Tuesday, Sept. 9
Job Openings and Labor Turnover Data - Tuesday, Sept. 9
Mortgage Applications - Wednesday, Sept. 10
Initial Unemployment Claims - Thursday, Sept. 11
EARNINGS: Campbell Soup - Thursday, Sept. 11