Vital Signs for the Week of Aug. 23

On tap: August consumer sentiment, July durable goods orders, new and existing home sales for July, a second look a second-quarter gross domestic product, and more

An increase in caution among consumers and businesses is one reason given for the recent slowdown in the economy. Uncertainty about oil, Iraq, terrorism, and jobs appear to be clouding the bright outlook for the economy that households and executives once shared.

Just how deep this anxiety runs may become a little clearer this week. The final reading of August consumer sentiment isn't expected to change, according to economists surveyed by Action Economics. However, the more important news will be whether or not households stick to their attitudes on oil prices and jobs.

According to the University of Michigan's July survey, consumers have resigned themselves to high oil prices. However, it remains to be seen whether prices touch $50 per barrel and if this level triggers any negative psychological reaction. So far, consumers remain resilient as demonstrated by the July auto and retail sales figures.

That may be due to their outlook on the labor market. According to the final July survey of consumer sentiment, the outlook for falling unemployment was the strongest in 20 years. That view would appear to contrast with the latest jobs data. However, the Labor Dept.'s household survey, a part of the monthly employment report, was far stronger than the figures reported by employers. If consumers remain confident about jobs, then spending is likely to hold up.

Of course, job growth hinges on businesses. Demand still looks pretty good for business spending. The consensus forecast is for a 1% gain, but it could come in higher. New orders are a good proxy for business confidence. Orders won't be placed by companies if they don't believe demand for their goods or services will hold up or improve.

Plus, a strong housing market is positive for consumer spending. One upshot from the apparent easing in economic growth this summer has been a retreat in mortgage rates. That has people rushing to buy a home before rates resume their upward march. The robust level of home buying should have some positive effect on consumer spending for furniture, as well as electronics and appliances.

Negative news and high energy prices are certainly a concern. However, fundamentals for growth are still favorable. So although it's increasingly unlikely that the economy will approach the 4.5% annual growth rate of the first quarter, it still looks like growth can do better than the apparent sub-3% gain of last quarter.

Here's the weekly economic calendar.


Monday, Aug. 23

Jackson Hewitt Tax Service, Toys R Us, and more.


Tuesday, Aug. 24

H&R Block, H.J. Heinz, and more.


Tuesday, Aug. 24, 7:45 a.m. EDT

This weekly tracking of retail sales, assembled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ending Aug. 21. In the week ended Aug. 14, seasonally adjusted sales retreated by 0.6%, after a 0.1% gain in the prior week, and three straight weeks of 0.2% increases.


Tuesday, Aug. 24, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the third fiscal week of the month, ended Aug. 21. Through the first two weeks, ended Aug. 14, sales were off 0.6% compared with the same period in July. In the first week, sales were down 0.5% vs. the same period in July. For the full month of July, sales were down 0.1% from June.


Tuesday, Aug. 24, 10 a.m. EDT

July existing home sales will cool down a little, say economists surveyed by Action Economics. The median forecast calls for sales to reach an annual rate of 6.8 million.

In June, sales hit a record annual pace of 6.95 million, from 6.81 million in May and a yearly rate of 6.63 million in April. Existing home sales have increased every month since January and are on track to smash last year's record level of 6.1 million.

A muted rise in mortgage rates and the anticipation of higher rates in the near future have pushed people to act. When interest rates turn higher, sales should moderate.


Wednesday, Aug. 25, 12:30 p.m. EDT

Federal Reserve Bank of Atlanta President Jack Guynn addresses the Paper and Pulpwood Industry luncheon in Atlanta.


J. M. Smucker, Michaels Stores, Toll Brothers, Williams-Sonoma, and more.


Wednesday, Aug. 25, 7 a.m. EDT

The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Aug. 20. In the week ended Aug. 13, the purchase index bounced back up to 467.1, from 440 in the prior period, and 452 in the week ended July 30. The latest reading of the four-week moving average also rebounded, reaching 451, after slipping to 444.3, in the week ended Aug. 6.

The average rate on a conventional 30-year mortgage, according to HSH Associates, fell back below 6% for the week of Aug. 13, to 5.99%, after easing to 6.13% in the week ended Aug. 6. Upward pressure on interest rates has eased recently, despite the Federal Reserve's Aug. 10 rate hike. Uncertainty regarding the strength of the economic upturn and some signs that inflation remains tame are the reasons for the decline.

The refi index grew for the second straight week, shooting up to 1982.7, the highest reading since April. In the prior week, the index rose to 1640.5, from 1600.3 in the week ended July 30. The refi index four-week moving average also turned around, rising to 1718.1, from 1635.2 in the period ended Aug. 6.


Wednesday, Aug. 25, 8:30 a.m. EDT

New orders received by manufacturers of durable goods probably grew 1% in July, say economists queried by Action Economics. In June, orders rose 0.9%, after a 0.9% fall in May, and a 2.7% plunge in April. An important part of the July report will be the composition of growth. In June, the 0.9% increase was dominated by defense spending. Excluding defense items, orders were up just 0.1%.

Economists at Citigroup see a large upside risk to the July data. In addition to a broad rebound in orders, a large jump in transportation orders is expected. A significant increase in jetliner and defense equipment orders could help push the monthly gain to above 7%, according to Citigroup. Seeing a big and broad gain in orders would be a reassuring sign of business confidence.

Right now, the early indicators for July are mixed. The national factory activity survey by the Institute for Supply Management was upbeat. However, regional factory activity surveys by the Philadelphia and New York Federal Reserve Banks were soft.


Wednesday, Aug. 25, 10 a.m. EDT

Similar to existing home sales, the number of new single-family homes sold in July probably eased. The consensus among economists surveyed by Action Economics is for a decline to an annual rate of 1.3 million. In June, sales slowed to an annual rate of 1.33 million, from an annual rate of 1.34 million in May.

The new home market looks strong. Besides robust sales figures, the stock of homes available remains at a svelte 3.4 months. In addition, the average period before a completed home sold is hovering near 4 months. That's just below the average level of 4.2 months over the past five years.

The number of homes sold before construction even starts also continues to rise. The figures show that both demand and supply are currently in balance. Homebuilders aren't getting overzealous in building new homes, which should help prevent a sharp contraction in the housing sector as interest rates rise.


Thursday, Aug. 26

Dollar General, Krispy Kreme Doughnut, Sports Authority, and more.


Thursday, Aug. 26, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended Aug. 21 are expected to nudge down to 330,000, according to the median forecast of economists surveyed by Action Economics. Jobless claims posted an unexpected fall in the week ended Aug. 14, to 331,000 from an upwardly revised 334,000 for the period ended Aug. 7, and 337,000 in the period ended July 31.

The latest reading may have been affected by Hurricane Charley. If so, the likely impact would be to lower claims last period with a subsequent uptick in this week's number.

The four-week moving average fell to 337,000, from 339,500 in the week ended Aug. 7. In the week of Aug. 7, continuing jobless remained nudged up to 2.9 million, from 2.89 million.


Thursday, Aug. 26, 10 a.m. EDT

The Conference Board releases its July index of help-wanted ads, based on ads culled from major newspapers across the nation. In June, the index fell back to 38, from 39 in May. The index has held within a range between 37 and 40 since June of 2003 and is actually under the June, 2002 reading of 47. The proportion of markets tracked with a rising want-ad volume was just 31% in June, after hitting 75% in May, from 35% in April. This measure, however, has been quite volatile lately.

Over the three-month period through May, help-wanted ads improved in just four of nine U.S. regions: The South Atlantic -- which includes the Carolinas and Virginia, New England, the Mid-Atlantic, and Mountain regions.


Friday, Aug. 27

Federal Reserve Board Chairman Alan Greenspan makes opening remarks at the Kansas City Federal Reserve Bank's annual economic symposium in Jackson Hole, Wyoming.

International Monetary Fund Managing Director Anne Krueger gives a luncheon address at the Kansas City Federal Reserve Bank's annual economic symposium in Jackson Hole, Wyoming.


Friday, Aug. 27, 8:30 a.m. EDT

A second look at real gross domestic product is expected to show a downward revision to growth. Economists surveyed by Action Economics forecast the economy expanded by a seasonally adjusted annual rate of 2.7%.

The Commerce Dept. originally reported growth at 3% for the second quarter. In addition, revised historical figures were included in the advanced report. Now, the economy is reported to have expanded by 4.5% in the first quarter, after growing by 4.2% in the fourth quarter of 2003, and 7.4% in the third period.

A record trade deficit for June is a significant reason why economists have trimmed their second-quarter estimates. The $55.8 billion shortfall more than wiped out the positive contribution from a record level of exports in May. Consumer spending should show a slight improvement, as June retail sales figures were revised upward in the July report.


Friday, Aug. 27, 9:45 a.m. EDT

The University of Michigan's Survey Research Center will report its final reading of consumer sentiment for August. The consensus among economists surveyed by Action Economics is for the index to hold at 94, after a final reading of 96.7 for July, and 95.6 in June.

The drop in the preliminary survey came from a drop in consumer expectations for the coming six months. In fact, consumers actually said they felt better about the current conditions.


Saturday, Aug. 28

Bank of England Governor Mervyn King and Harvard University President Lawrence Summers take part in a panel discussion on demographic changes at the Kansas City Federal Reserve Bank's annual economic symposium in Jackson Hole, Wyoming.

By James Mehring

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