Vital Signs for the Week of Sept. 5

On tap: The Federal Reserve's Beige Book, the ISM's August nonmanufacturing index, revised second-quarter productivity figures, and more

The full impact of Hurricane Katrina is still unknown, both in human and economic terms. It's becoming increasingly clear, however, that there will be some nationwide effect on the economy during the remainder of this year. Just how much of a drag partially hinges on how much momentum the U.S. economy was losing before the storm.

The Institute for Supply Management's (ISM) nonmanufacturing report and will offer a glimpse of how businesses were dealing with surging energy prices in August, prior to Katrina. In July, the ISM survey covering nonmanufacturers stated that price increases were among respondents' chief concerns. The ISM's factory activity report already showed indications that prices are causing a renewed bout of caution within Corporate America.

The problem is high and very volatile energy prices, which are hampering the visibility and planning efforts of managers. The uncertainty of where prices will go and how fast they will move could become a bigger factor in the outlook than the actual level of oil, gasoline, and natural gas prices.

Right now, matters are only made worse with the uncertainty surrounding when refineries and pipelines in the hard hit regions of Louisiana, Alabama, and Mississippi will begin operating again. The Energy Information Agency stated on Sept. 1 that it could be a period of months before all the facilities are up and running. However, the impact of such a scenario on energy prices depends on what happens to supplies and demand in the mean time. The hurricane season is only at the half-way mark. At the same time, a downshift in economic activity will reduce demand for energy, eventually helping to soften prices.

The Federal Reserve's Beige Book report also bears watching. Prior to Hurricane Katrina, economists believed the central bank would raise interest rates by a quarter-point in both Sept. and November and then pause in December at a Fed funds rate of 4%. Now, the mood has shifted. Instead of a unanimous agreement on a Fed move later this month, close to 20% see Alan Greenspan and company holding steady.

A week ago there was still a belief that a resilient U.S. economy could approach 4% annualized growth the rest of this year, even in the face of rough energy headwinds. But after Katrina, everything must be reassessed.

Here's the weekly economic calendar.

Labor Day will make for a short week. The financial markets and government offices will be closed on Monday, Sept. 5.


Tuesday, Sept. 6, 1:30 p.m. EDT

U.S. Defense Secretary Donald Rumsfeld speaks at the Council on Foreign Relations in New York City.

1:30 p.m. EDT

U.S. Supreme Court nominee John G. Roberts Jr. begins his confirmation hearing by testifying before the Senate Judiciary Committee in Washington, D.C.


Tuesday, Sept. 6, 10 a.m. EDT

The Institute for Supply Management releases its latest index of business activity in the mostly services, non-manufacturing sector. The consensus among economists surveyed by Action Economics is that the August reading will bounce back to 60%. In July, the index slipped to 60.5%, from 62.2% in June.

Other aspects of the July survey showed strength among service-sector dominated nonmanufacturing segment of the economy. The July new orders index climbed to 61.9%, from 59.5% in June. The new export orders index rose to 53.5% in July, after diving to 50% in June. Unfilled orders and employment also increased in July based on the indexes.


Wednesday, Sept. 7, 1 p.m. EDT

Federal Reserve Bank of Chicago President Michael Moskow speaks about the U.S. economy before the Futures Industry Assn. in Chicago.


Wednesday, Sept. 7

Albertson's, Comverse Technology, Navistar International, and more.


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

The Mortgage Bankers Assn. releases its numbers on mortgage applications for both home buying and refinancing for the week ending Sept. 2. The purchase index fell to 470.6 for the week of Aug. 26, from 488.4 in the previous period, and 499.3 during the week ended Aug. 12. The four-week moving average retreated to 489.3, from 495.3 for the week ended Aug. 19, and 494.4 for the week ended Aug. 12. The average rate on a conventional 30-year fixed mortgage, according to HSH Associates, ticked down to 5.95% during the week ended Aug. 26. For the week ended Aug. 19, the mortgage rate stood at 5.97%.

The MBA's refi index also declined. In the period ended Aug. 26, the index came in at 2187.8, from 2313.9 in the prior week, and 2285.5 over the week ended Aug. 12. The four-week moving average fell to 2240.9 in the week ended Aug. 26, from 2256.6 for the period ended Aug. 19.


Wednesday, Sept. 7, 7:45 a.m. EDT

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the period ending Sept. 3. During the week ended Aug. 27, sales fell 0.3% for a second straight week, after a 0.2% decline during the week ended Aug. 13, and a 0.8% drop during the week ended Aug. 6.


Wednesday, Sept. 7, 8:30 a.m. EDT

Revised productivity growth for the second quarter, measured as output per hour worked, was probably unchanged from the initial figures. The median forecast of economists surveyed by Action Economics calls for a second-quarter annualized growth rate of 2.2%. The initial second-quarter growth was 2.2%. In the first quarter, nonfarm productivity was clocked at an annualized rate of 3.2%, after a fourth-quarter increase of 2.5%. Productivity growth for the full year of 2004 was 3.4%, after a 3.8% improvement during 2003.

Second-quarter unit labor costs most likely remained unchanged from the 1.3% annualized increase given in the initial release. First-quarter unit labor costs raced up to an annual pace of 3.6%, after a 7.6% jump in the fourth quarter. Costs grew 1.1% for all of 2004, after a small gain of 0.2% in 2003.


Wednesday, Sept. 7, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the first fiscal week of September, ended Sept. 3. For the entire month of August sales were off 1% compared to the full month of July. For the entire month of July, sales were up 0.3%.


Wednesday, Sept. 7, 2 p.m. EDT

The Federal Reserve will release its compilation of regional economic activity, based on survey responses from each of its 12 districts. The Beige Book comes ahead of the Sept. 20 monetary policy meeting. The effects from higher energy prices on the rest of the economy will be what analysts look for in this report.

Economists queried by Action Economics expect another 25 basis point rate hike, to 3.75%. However, the consensus for the rest of the year is that the Fed will hike rates to 4% in November and then take a break in December. Whether the Fed does pause or not likely hinges on how much impact higher energy prices have on consumer spending and business investment.

Whether the bond market finally follows the Fed's lead and begins to push up long-term rates in earnest will also factor in when the central bank finally ends its streak of quarter-point rate increases.


Thursday, Sept. 8, 3:40 p.m. EDT

Federal Reserve Bank of San Francisco President Janet Yellen discusses the U.S. economy and monetary policy at a San Francisco Fed luncheon at the Los Angeles branch bank.


Thursday, Sept. 8

Molex, National Semiconductor, Sears Holdings, and more.


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

First-time claims for jobless benefits for the week ended Sept. 3 probably increased to 325,000. Jobless claims climbed up to 320,000 for the week ended Aug. 27, after easing to an upwardly revised 317,000 in the previous period.

The four-week moving average rose to 316,800, from 315,500 for the period ended Aug. 20. Continuing jobless claims for the week ended Aug. 20 stood at 2.6 million, from 2.57 million in the week ended Aug. 13.


Thursday, Sept. 8, 10 a.m. EDT

Wholesale sales probably jumped in July. The median forecast of economists queried by Action Economics is for a monthly gain of 0.6%. In June, wholesale sales also climbed 0.6%, after a 0.1% rise in May. The June rise was led by a 1.2% increase in sales of automotive items, including vehicles.

Inventories surged 0.7% in June, after rising 0.3% in May and 0.7% during April. Autos were also the main culprit in for the rise in inventories, with a June gain of 3.1%. This category bears watching. After July sales surged to an annualized rate of 20.9 million vehicles, August sales softened to a pace of 16.8 million despite the continuation of various employee pricing incentive programs. The June inventory-to-sales ratio held at 1.19 for a second straight month.


Thursday, Sept. 8, 3 p.m. EDT

Consumer credit probably increased by $10 billion in July. That's the consensus estimate among economists queried by Action Economics. During June, households racked up $14.5 billion in debt, following a $1.2 billion retreat in May. The June increase was the biggest monthly jump since October, 2004.

Revved up light vehicle sales will probably fuel most of the July accumulation in debt. In June, consumer credit among revolving accounts, made up mostly of credit card debt, and nonrevolving accounts was pretty even. Nonrevolving debt rose by $6.9 billion in June, with revolving credit growing by $7.7 billion.


Friday, Sept. 9, 8:30 a.m. EDT

Import prices are expected to keep climbing. The consensus estimate from Action Economics is for a 1.1% rise in August import prices. In July, the import price index also increased 1.1%, after a 1% rise in June. Excluding petroleum, import prices have fallen in the past three months. Overall, import prices were up 7.7% from a year ago in July, from 7% in June, and 5.7% in May. The year ago increase in April was 8.9%. Strip out oil and the import prices were up 2.2% from a year ago in July.

August export prices probably held steady, after a 0.1% gain in July. The June index was 0.1% lower than the May level. Take away the 0.2% fall in agricultural goods prices and monthly export prices were up 0.2% in July. Compared with a year ago, export prices were up 2.7%, after a yearly rise of 3.1% in June.


Saturday, Sept. 10, 1 p.m. EDT

Federal Reserve Bank of Philadelphia President Anthony Santomero speaks on the state of the banking industry at the Pennsylvania Association of Community Bankers annual convention in Banff, Alberta, Canada. g

By James Mehring

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