Vital Signs: To Hike or Not To Hike?

The outcome of the Aug. 8 monetary policy meeting is up in the air. Also on tap: second-quarter productivity, retail sales, and international trade

To hike or not to hike, that is the question of the week. Not since the Federal Reserve started its campaign of hiking rates in June of 2004 has the outcome of a monetary policy meeting seemed so uncertain. Heading into the Aug. 8 confab of the Federal Open Market Committee, only a narrow majority of economists queried by Action Economics expect the Fed will stay on hold.

There have been mixed signals emerging from the economic data of late. Economic growth was slower in the second quarter and revised figures showed slower growth in the past three years.

Yet worker compensation was more than originally stated and it has been clearly accelerating in recent quarters. It implies that businesses have not been squeezing out as much productivity gains as previously thought and that labor costs for producing the smaller amount of output were larger.

The combination seems to indicate potentially greater inflationary pressures. Confirmation of these trends extracted from the revised gross domestic product figures should come in the Aug. 8 productivity report.

After the Fed announces its decision, the markets will get some additional data on the health of the all-important American consumer. July retail sales data is expected to look fairly healthy. Auto sales for the period were solid, but the softer housing market has led to a clear deceleration in the pace of sales at home improvement retailers.

Another area of importance will be on the international front. June trade figures come on Aug. 10. These figures will provide an update of demand from abroad for capital goods made by American manufacturers. The capital spending upswing globally has been a boon for U.S. factories and could be even more significant if the U.S. economy is indeed downshifting.

While most of the attention next week will be on the Fed's decision, one should not ignore the rest of the data. After all, no matter what the Fed does, it's likely to have just as difficult decisions to make over the rest of the year.

Here's the weekly economic calendar, from Action Economics.

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