Vital Signs for the Week of Sept. 13

On tap: August industrial production, retail sales, consumer price figures, regional factory activity surveys, and more

Fears of a slowing economy and oil prices still north of $40 per barrel are not derailing the manufacturing recovery. Indeed, economists surveyed by Action Economics expect August industrial production to have grown by 0.5%.

Factory activity may not remain at the levels seen in the first half of the year. Forecasts for the next batch of regional factory activity indexes indicate some moderation is in store. Even the Institute for Supply Management's August index showed some deceleration in the pace of factory activity. However, all the major surveys remain near their historical averages.

What's more, factory orders are still rising. July orders were up 1.3% from June and 0.8% after the large amount of orders for transportation goods are taken out. On top of that, factories are only now beginning to catch up on the large pile of unfilled orders through the first half of the year, up 5.4% during the period.

Even as manufacturers report slower activity today, they remain fairly optimistic about conditions heading into 2005. The latest manufacturing surveys from the Federal Reserve Banks of Richmond and Philadelphia showed a rebound in expectations, although the New York Fed's August report wasn't quite as optimistic.

Some of the optimism may lie with the weaker U.S. dollar. Along with the pickup in the global economy through the first half of the year, a weaker greenback is helping manufacturers to compete abroad more effectively. The latest international trade data showed a rebound in exports. Exports of goods such as telecomm equipment, industrial machinery, and semiconductors have seen a strong increase this year.

With a weaker dollar, American businesses can keep the price of goods in U.S. dollars the same, but the goods are cheaper in euro terms. A second option is to raise the price in U.S. dollars so that the cost, in euros, holds steady. The latest data on import and export prices show export prices, even for capital goods, have been rising.

Unfortunately, for manufacturers the weaker dollar hasn't helped to improve their ability to raise prices at home. The prices of foreign goods, especially capital equipment have not risen by much. So even though demand has risen, margins for goods sold at home remain tight.

Overall, the latest data indicate that manufacturers have passed through the economy's soft patch without sustaining any permanent damage.

Here's the weekly economic calendar.


Monday, Sept. 13

Campbell Soup, CKE Restaurants, and more.


Monday, Sept. 13, 2 p.m. EDT

The federal deficit probably kept growing in August. The Treasury Dept. releases the details on the government's budget for the eleventh month of fiscal year 2004, and the median estimate among economists surveyed by Action Economics is a $41 billion deficit.

In July, the Treasury reported a $69.2 billion deficit following a $19.1 billion surplus in June. In August of 2003, the government tallied a $76.6 billion deficit. Last August's total was pushed higher by federal tax rebate checks. In 2002, the shortfall was $54.7 billion. So far, the fiscal year 2004 budget deficit stands at $395.8 billion, compared with $374.3 billion for all of fiscal 2003.


Tuesday, Sept. 14

Kroger, Oracle, and more


Tuesday, Sept. 14, 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 September 11. In the week ended September 4, seasonally adjusted sales were unchanged, after a 0.2% drop in the week ended August 28, and a 0.1% increase in the previous period.


Tuesday, Sept. 14, 8:30 a.m. EDT

After a solid July, retail sales probably nudged lower in August. According to the consensus estimate of economists queried by Action Economics, retail sales fell 0.1% in August. During July, sales climbed 0.7%, after an upwardly revised 0.5% slide in June.

Excluding autos, sales are expected to be up 0.2%, after a 0.2% gain in July, and a 0.3% gain in June. Light vehicle sales came in at an annual pace of 16.6 million in August, following 17.2 million in July.


Tuesday, Sept. 14, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the second fiscal week of September, ending the 11th. During the first week, sales were up 0.9% compared with the same period in August. For the full month of August, sales were off 1.1%, after July sales dropped 0.1% from June.


Tuesday, Sept. 14, 10 a.m. EDT

The current account deficit -- a kind of cash flow statement of U.S. international business, including trade in goods and services, net investment income, and foreign transfers -- probably widened to $160 billion in the second quarter, according to Action Economics. In the first quarter of 2004, the current account widened to $144.9 billion, from $126.96 billion in the fourth quarter of 2003. The forecast $162.5 billion deficit would approach 5.6% of the gross domestic product.


Tuesday, Sept. 14, 10 a.m. EDT

The Richmond Federal Reserve Bank will release its August survey of business conditions in the Richmond Fed district. The July report showed some softening in regional conditions, but manufacturers were more optimistic about conditions over the coming months.

The manufacturing activity index slipped to 6 in July, from 14 in June, and 22 in May. The new orders index rebounded to 13, from 1 in June and 12 in May. However, unfilled orders shrank a little more, with the index coming in at -3, after dropping to -12 in June. In addition, capacity utilization improved marginally.

The region's manufacturers expressed more confidence about future prospects. The shipments reading leaped up to 33, from 10 in June, and 16 in May. The new orders, unfilled orders, and capacity utilization indexes also reflected a better outlook.


Wednesday, Sept. 15

Best Buy and more.


Wednesday, Sept. 15, 7 a.m. EDT

The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Sept. 10. In the week ended Sept. 3, the purchase index bounced back up to 476, from 443.1 in the prior week, and 443.7 in the week ended Aug. 20. The latest reading of the four-week moving average also increased, hitting 457.5, from 448.5 in the week ended Aug. 27.

The average rate on a conventional 30-year mortgage, according to HSH Associates, eased back to 5.9% in the week of Sept. 3. In the week ended Aug. 27, the rates stood at 5.97%.

The refi index rebounded during the latest period, reaching 1948.9, from 1804.1 in the week ended Aug. 27, and 1824.9 in the week ended Aug. 20. The refi index four-week moving average climbed to 1890.2, from 1813.1 in the period ended Aug. 27.


Wednesday, Sept. 15, 8:30 a.m. EDT

Inventories held by manufacturers, wholesalers, and retailers probably grew by 0.7% in July, say economists surveyed by Action Economics. Inventories expanded by 0.9% in June, after gains of 0.7% in each of the prior three months.

The Commerce Dept. already released July factory inventory numbers. Manufacturers' reported that their inventories increased by 0.8%, after a 1% rise in June.


Wednesday, Sept. 15, 10 a.m. EDT

The New York Federal Reserve Bank will release its September survey of business conditions for manufacturers in the New York Fed district. According to Action Economics, the headline manufacturing activity index is expected to rebound back to 20. The August survey plunged to 12.6, from 35.8 in July, and 29.9 in June.

The August report showed that conditions cooled off, with new orders and shipments increasing at a much slower clip. Unfilled orders actually shrank in the period, with the index falling to -4.6, the first negative reading in nearly a year. Even with the declines, respondents did show an increase in hiring, with the index reaching 17, from 13.1 in July.

Those surveyed also lowered their expectations for the coming six months. The general business conditions index eased to 47.6, from 52.8 in July. The new orders, shipments, and unfilled orders series also moderated. The upshot from a more subdued assessment of future conditions was a sharp pullback in expected hiring plans.


Wednesday, Sept. 15, 9:15 a.m. EDT

U.S. industrial output probably picked up during August. The consensus among economists surveyed by Action Economics is for a 0.5% increase in August. In July, industrial output grew 0.4%, after a 0.5% drop in June, and a 0.9% gain in May. The average operating rate for all industries probably inched up to 77.4%, after rebounding to 77.1%, from 76.9% in June. As factory activity keeps expanding, capacity utilization should steadily rise.


Thursday, Sept. 16

Biomet, 3Com, and more.


Thursday, Sept. 16, 8:30 a.m. EDT

First-time claims for jobless benefits for the week ended Sept. 11 are expected to increase to 335,000, according to the consensus estimate of economists surveyed by Action Economics. Jobless claims tumbled to 319,000 in the week ended Sept. 4, from 363,000 in the week ended Aug. 28, and 342,000 for the prior period.

The four-week moving average retreated to 339,300, from 343,000 in the previous period, and 336,500 over the week ended Aug. 21. In the week of Aug. 28, continuing jobless remained at 2.9 million.


Thursday, Sept. 16, 8:30 a.m. EDT

Inflation crept a little higher in August, as consumer prices for all goods and services are forecast to have increased by 0.2%. That's the consensus estimate of economists queried by Action Economics. However, the unexpectedly large jump in August import prices, due to oil, could mean a higher than expected increase in the CPI index.

In July, consumer prices actually slipped 0.1%, after 0.3% increase in June, and a 0.6% leap over May. The monthly decline in July pulled the annual inflation rate down to 3%, after climbing to 3.3% in June.

Energy and food prices have been the biggest factors in driving up inflation. Excluding those more volatile items, prices probably rose 0.2% in August, after core inflation ticked up by 0.1% in both July and June. The yearly rate of core inflation held steady at 1.8%. After climbing from a rate of 1.1% in January to 1.8% by April, core inflation has remained at 1.8%.


Thursday, Sept. 16, 8:30 a.m. EDT

Inflation-adjusted weekly earnings of production workers probably inched up during August. The August employment report's figures showed a 0.3% increase in average weekly earnings, and economists are forecasting a 0.2% increase in the consumer price index for August. That would put real earnings growth at 0.1% for August, after a 0.7% boost in July. Compared with the same period a year ago, real earnings in July were down 0.7%.


Thursday, Sept. 16, 12 p.m. EDT

The Philadelphia Federal Reserve Bank will release its September survey of business conditions for the mid-Atlantic region. Economists surveyed by Action Economics are forecasting a small decline in the index of general business conditions to 25. For August, the index cooled down to 28.5, from 36.1 in July.

The indexes tracking shipments, new orders, and unfilled orders all retreated, after posting solid gains in July. Plus, the employment index fell to 17.2, from a record high of 24.6.

Much like the most recent Richmond Fed factory activity survey, the respondents to the Philly Fed survey expressed greater confidence about the coming six months. The headline index moved up to 52.7, from 36.3 in July. Future expectations for shipments, unfilled orders, new orders, and hiring expectations were all higher.


Friday, Sept. 17

Circuit City Stores, and more.


Friday, Sept. 17, 10 a.m. EDT

The University of Michigan's Survey Research Center will report its initial index reading of consumer sentiment for September. According to economists surveyed by Action Economics, the preliminary September reading probably nudged up to 96.7. In August, the final report showed a small drop to 95.9, from 96.7 in July.

By James Mehring

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