Vital Signs for the Week of Sept. 12

On tap: August consumer and producer price indexes, industrial production figures, initial September consumer sentiment, and more

The value of many of the economic reports covering conditions prior to September -- and thus before the effects of Hurricane Katrina -- will be discounted by the markets. This is especially true for data on economic output and activity. As a result, economists and Wall Street will focus more on the coming week's inflation reports, especially since energy prices had risen sharply even before Katrina hit.

The Federal Reserve and many economists believe higher energy prices have a bigger impact on growth than overall inflation. Global competition has limited the ability of businesses, especially manufacturers, to pass along higher material and production costs to consumers. Even so, there are concerns that at their current price levels, and with little relief in sight, higher energy prices may filter through into other sectors and push inflation broadly higher.

Other inflation pressures are also possible, outside of the direct effects from costlier energy. For example, the Gulf Coast area's closed ports will restrict imports just as retailers gear up for the holiday season. Also, a large federal aid package will provide some offset to reduced commercial activity, helping to boost demand. And the coming rebuilding efforts will lift already-hot demand for housing and construction materials.

The consensus among economists surveyed by Action Economics is for big jumps in the August headline producer and consumer price indexes. Core indexes, which take out food and energy, are expected to show more muted gains.

A surprise to the upside in core inflation would give the Federal Reserve more ammunition to keep hiking interest rates. Indeed, on Sept. 7, Federal Reserve Bank of Chicago President Michael Moskow said that higher energy prices and higher core inflation were two prime risks to the economy before the hurricane. With the economy running closer to capacity, higher energy prices and diminished supplies could more easily translate into higher inflation.

Here's the weekly economic calendar.


Monday, Sept. 12

Campbell Soup, Pall Corp., and more.


Tuesday, Sept. 13

U.S. President George W. Bush hosts Iraqi President Jalil Talibani at the White House in Washington, D.C.


Best Buy, Kroger, and more.


Tuesday, Sept. 13, 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. 10. During the week ended Sept. 3, sales held steady, after 0.3% declines in the previous two weeks.


Tuesday, Sept. 13, 8:30 a.m. EDT

The monthly U.S. trade deficit of goods and services most likely widened during July. The median forecast of economists surveyed by Action Economics is a deficit of $59.8 billion. The June trade gap was $58.8 billion, after a deficit of $55.4 billion in May, and $56.9 billion in April.

In June exports ticked higher, but imports jumped. The rebound in imports was caused by oil and natural gas as prices rose. Energy demand and prices could very well cause even larger deficits in August and September. On the exports side, the small $42 million increase in June was caused by a $600 million rise in capital goods exports.


Tuesday, Sept. 13, 8:30 a.m. EDT

Producer prices for finished goods sold by U.S. businesses probably posted a sizeable, energy-driven increase in August. Economists polled by Action Economics forecast a 0.7% jump.

The monthly swings are driven by energy prices. In July, the producer price index surged 1%, after holding steady in June, and a dip of 0.6% in May. Producer prices were up 4.6% from a year ago in July, after slowing to a yearly clip of 3.6% in June and 3.5% in May.

Excluding food and energy costs, core prices probably increased by 0.1% in August. In July, core producer prices rose 0.4%, after a 0.1% decline in the prior month, and a 0.1% gain in May. Compared with the same month a year ago, the July core price index was up 2.8%, vs. 2.2% in June and 2.6% in each of the three prior months.


Tuesday, Sept. 13, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales through the first two fiscals weeks of September, ended Sept. 10. Through the first week of September, ended Sept. 3, sales were up 0.2%. For the entire month of August sales were off 1% compared to the full month of July.


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

The federal government is forecast to have run a budget deficit of $50 billion in August. That's the median estimate among economists surveyed by Action Economics. In July, the government ran a $52.8 billion deficit, after a $22.4 billion surplus in June. Last year, the August shortfall was $41.1 billion, and stood at $76.6 billion in August of 2003.

The fiscal year 2005 deficit through the first ten months was $302.6 billion. Through July of 2004, the deficit stood at $396.3 billion. With only the August and September figures to go, the fiscal year 2005 deficit will probably come very close to the updated $332 billion deficit forecast made by the Office of Management and Budget in July. Emergency funds for the cleanup after Hurricane Katrina could have a small upward impact on the final deficit figure for this fiscal year.


Wednesday, Sept. 14, 7 a.m. EDT

The Mortgage Bankers Association releases its numbers on mortgage applications for both home buying and refinancing for the week ending Sept. 9. The purchase index moved up to 499.1, from 470.6 for the week of Aug. 26, and 488.4 in the previous period. The four-week moving average was virtually unchanged at 489.4, after a reading of 489.3 for the week ended Aug. 26. The average rate on a conventional 30-year fixed mortgage, according to HSH Associates, eased to 5.9% during the week ended Sept. 2. For the week ended Aug. 26 the mortgage rate stood at 5.95%.

The MBA's refi index posted a gain as well. In the period ended Sept. 2, the index stood at 2357.1, after slipping to 2187.8 in the week ended Aug. 26, from 2313.9 in the prior week. The four-week moving average bounced back to 2284.6 in the week ended Sept. 2, from 2240.9 for the week of Aug. 26.


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

Retail sales took a breather in August, according to Action Economics. The median forecast is for a 1.2% decline in August.

In July and June, retail sales expanded by 1.8% and 1.7%, respectively. Auto sales was a major contributor the strong summer gains. July auto sales hit an annual pace of 20.9 million vehicles, after a June pace of 17.5 million. But the employee incentive programs offered by the major U.S. automakers lost some lure as August auto sales slowed to an annualized pace of 16.8 million.

Take away light vehicle sales, and August retail sales are forecast to have risen 0.5%. In July, sales excluding vehicles grew 0.3%, after a June gain of 0.9%. The ex-auto estimate shows the resilience economists believe consumers have in the face of escalating energy costs from higher gasoline, natural gas, and petroleum prices. It remains to be seen just how much impact Hurricane Katrina will ultimately have on energy prices over the remainder of the year.


Wednesday, Sept. 14, 9:15 a.m. EDT

U.S. industrial production probably grew 0.2% during August. That's the consensus estimate from economists polled by Action Economics. In July, output edged up 0.1%, after a 0.8% increase in June, and a 0.3% rise in May. The main drags on the July results were a 1.3% decline in mining output and a 2.9% fall in output of auto products. Output strictly from factories grew 0.1% in July. Excluding autos, factory output was up 0.4% in July.

Business equipment, a key market group measured by the Fed, showed a 1.3% rise in output. The group includes commercial transportation equipment, information processing goods, such as computers, and other industrial goods used predominantly by businesses. This will be an important category to watch in order to gauge whether businesses are once again lapsing into a wait-and-see attitude.

The average operating rate for all industries probably edged up to 79.9% in August. The July rate slipped to 79.7%, from a downwardly revised 79.8% in June. The original June utilization rate climbed was 80%. The capacity utilization rate has not been at 80% since December of 2000.


Thursday, Sept. 15

Adobe Systems, Bear Stearns, and more.


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

First-time claims for jobless benefits for the week ended Sept. 10 probably jumped to 355,000 due to the hurricane. Jobless claims eased to 319,000 for the week ended Sept. 3, after rising to 320,000 in the previous period.

The four-week moving average rose to 318,500, from 316,500 for the period ended Aug. 27. Continuing jobless claims for the week ended Aug. 27 edged down to 2.59 million, from 2.6 million in the week ended Aug. 20.


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

Consumer prices for all goods and services are expected to have risen 0.5% in August. That's the consensus estimate among economists polled by Action Economics. The July consumer price index was up 0.5%, after holding steady in June, and slipping 0.1% in May. The yearly pace picked back up in July with the July index standing 3.2% above the year ago reading. The June index was up 2.5% from a year ago, while May prices were up 2.8%.

Excluding the volatile energy and food categories, consumer prices probably increased 0.2%. In each of the prior three months, the core consumer price index rose 0.1%. The yearly rate of core inflation for July was 2.1%, after standing at 2% in June, and 2.2% in both May and April.


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

The New York Federal Reserve Bank issues its September survey of business conditions for manufacturers in the New York Fed district. The median forecast from economists polled by Action Economics calls for a decline to 17. The August index slipped to 23, after jumping to 23.9 in July, from 10.5 in June.

The other indexes appeared more optimistic. The new orders, unfilled orders, and shipments indexes all posted gains in the August survey. The shipments index hit 23.9, after jumping to 20.9 in July, from 1 in June. The new orders index was 33.8 in August, from 19.2 in July. The unfilled orders index was 7.2 in August, following a jump in July to 2.9.

Respondents' expectations for the coming six months improved upon the July gain. The overall expectations index hit 53.3 in August, from 47 in July, and 34 in June. Expectations may be adjusted downward in the wake of an August surge in crude oil prices and Hurricane Katrina.


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

July inventories held by manufacturers, wholesalers, and retailers are forecast to have edged up by 0.1%. That's the median forecast by economists surveyed by Action Economics. Factory inventories were already reported to have held steady in June. Total business inventories were unchanged in June, after nudging up by 0.1% in May, and 0.2% during April.

Inventory levels economy-wide are believed to be at more comfortable levels now. That's a positive factor for factory production and overall business activity.


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

Inflation-adjusted weekly earnings of production workers probably fell 0.4% in August. The Labor Dept.'s employment report showed a 0.1% rise in weekly earnings during the period, while economists expect a 0.5% increase in the August consumer price index.

In July, real earnings slipped 0.2%, after a 0.3% gain in June and no change in May. Compared with the same period a year ago, July inflation-adjusted earnings were off 0.5%. Real wages were up 0.4% from a year ago in June.


Thursday, Sept. 15, 12 p.m. EDT

The Philadelphia Federal Reserve Bank releases its September manufacturing activity index for the mid-Atlantic region. The consensus among economists queried by Action Economics is for an index reading of 14.

The August Philly Fed index improved to 17.5, following a rise to 9.6 in July, from -2.2 in June. In addition, expectations over the coming six months bounced back. The future expectations index stood at 33.4, from 15.3 in July, 30.6 in June and 22.3 in May.

The current conditions indexes for shipments, new orders, and unfilled orders all improved some more in August, after bouncing back in July from June declines. The unfilled orders index turned positive in August for the first time since December, 2004. The previous negative results implied that companies were completing more orders than they were receiving.

The more optimistic outlook in the August survey will be tested in the September report. Higher energy prices and a possible negative economic impact on the regions manufacturers from Hurricane Katrina are sizeable negatives. In the August survey, the Philly Fed asked respondents if they felt energy prices would rise some more in 2005 and by how much. More than 75% expected further increases in energy prices with the average anticipated increase being 5.4%. The average expectation could end up being an underestimation.


Friday, Sept. 16

U.S. President George W. Bush hosts Russia's President Vladimir Putin at the White House in Washington, D.C.


Friday, Sept. 16, 8:30 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 -- is expected to have remained steady at $194.5 billion during the second quarter of the year. That's the consensus estimate from Action Economics.

In the first quarter, the current account deficit was $195 billion, up from $188.4 billion in the final quarter of 2004. The current account balance is likely to grow in the second half of the year if the economy weathers the higher energy prices as expected.

The consensus forecast of a $194.5 billion deficit would be 6.3% of the nominal gross domestic product. In the first quarter, the level was 6.2% of GDP.


Friday, Sept. 16, 9:45 a.m. EDT

The University of Michigan's Survey Research Center will report its preliminary reading of consumer sentiment for September. The median forecast from Action Economics is for a reading of 86.4. The final August index showed a retreat in consumer confidence, to 89.1, from 96.5 in July, and 96 in June.

Both the current conditions and future expectations components took a hit in the final August results. Higher gasoline prices were cited as the reason for the erosion in consumer confidence. In addition, respondents also lowered their outlook regarding financial prospects. The latest economic data and events in the southern United States provide little reason to expect a September rebound.

By James Mehring

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