Vital Signs: Foreign Trade Keeps Recession at Bay

On deck: Trade, import prices, retail sales, consumer price index, industrial production, and consumer sentiment.

The next batch of economic reports will spotlight the two faces of the U.S. economy: the foreign sector’s strong support to overall growth and the offset from the weak performance of domestic activity. Therein lies a danger for the second half. Growth in the rest of the world is slowing down, threatening to dampen the big contribution in recent quarters from U.S. exports.

Both the Eurozone and Japan are expected to post declines in second-quarter economic growth, and several emerging-market nations are cooling off. At the same time, demand at home will remain under stress from tighter credit, rising mortgage rates, falling payrolls, and the fading impact of the tax rebates by yearend.

Tuesday’s report on exports, imports, and the trade deficit will highlight trade’s big boost to second-quarter economic growth. The lift is currently estimated to have been 2.4 percentage points, more than accounting for last quarter’s 1.9% overall advance in real gross domestic product. In fact, foreign trade has single-handedly kept the economy out of a recession through the second quarter. Excluding net foreign trade, real GDP would have contracted 1% in the fourth quarter of last year, posted almost no growth in the first quarter, and dropped 0.5% in the second quarter.

The week’s readings on domestic activity will most likely remain in the doldrums, suggesting little momentum as the second half began. July retail sales may have been helped by the tax rebates, but much of those dollars went for higher gas prices, which averaged about the same in July as in June. Plus, car sales crashed in July to a 12.5-million annual rate, a 16-year low. Industrial production, which has been generally losing ground since January, will continue to show the impact of auto-industry weakness and softness in output of capital equipment. Despite strong U.S. exports, industrial output has not escaped the weakness in domestic spending.

Inflation will also play prominently in this week’s news. The July consumer price index will undoubtedly show another outsized increase, reflecting surging gas prices. However, the markets will be particularly interested in the core CPI, which excludes energy and food, given its uncomfortably large 0.3% rise in June. In addition, July import prices are likely to continue their recent march upward.

The Fed has all but taken rate hikes to control inflation off the table for the rest of this year, but stubbornly high import prices and core domestic inflation would put the Fed in the tough position of choosing to support a sick economy over acting preemptively to assure inflation remains tame.

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

Top Economic Reports
Reports Date Time For Median Estimate Last Period
Trade Balance ($Billions) Tuesday, Aug. 12 8:30 a.m. June -$62.6 -$59.8
Goods & Services Exports ($Billions) Tuesday, Aug. 12 8:30 a.m. June $158.4 $157.6
Goods & Services Imports ($Billions) Tuesday, Aug. 12 8:30 a.m. June $221.1 $217.3
Treasury Budget ($Billions) Tuesday, Aug. 12 2:00 p.m. July -$72.2 $50.7
Retail Sales Wednesday, Aug. 13 8:30 a.m. July 0.5% 0.1%
Retail Sales, Ex Autos Wednesday, Aug. 13 8:30 a.m. July 0.7% 0.8%
Export Price Index Wednesday, Aug. 13 8:30 a.m. July 0.8% 1.0%
Import Price Index Wednesday, Aug. 13 8:30 a.m. July 1.0% 2.6%
Business Inventories Wednesday, Aug. 13 10:00 a.m. July 0.5% 0.4%
Consumer Price Index Thursday, Aug. 14 8:30 a.m. July 0.5% 1.1%
Consumer Price Index, Ex Energy & Food Thursday, Aug. 14 8:30 a.m. July 0.2% 0.3%
Empire State Index Friday, Aug. 15 8:30 a.m. August -2.5 -4.9
Industrial Production Friday, Aug. 15 9:15 a.m. July 0.1% 0.5%
Capacity Utilization Friday, Aug. 15 9:15 a.m. July 79.8% 79.9%
Consumer Sentiment Index (preliminary) Friday, Aug. 15 9:55 a.m. August 61.8 61.2
Other reports and events
Other Reports and Events Date Time For
EARNINGS: Fluor Corp Monday, Aug. 11  
EARNINGS: Pepco Holdings Monday, Aug. 11  
EARNINGS: SYSCO Corp Monday, Aug. 11  
NFIB Survey (Small Business) Tuesday, Aug. 12 7:30 a.m. July
ICSC-UBS Store Sales Tuesday, Aug. 12 7:45 a.m. Aug. 3-9
Johnson Redbook Weekly Store Sales Tuesday, Aug. 12 8:55 a.m. Aug. 3-9
Job Openings and Labor Turnover Data Tuesday, Aug. 12 10:00 a.m. June
EARNINGS: TJX Cos Inc Tuesday, Aug. 12  
EARNINGS: Applied Materials Tuesday, Aug. 12  
EARNINGS: Nvidia Corp Tuesday, Aug. 12  
Mortgage Applications Wednesday, Aug. 13 7:00 a.m. Aug. 3-9
EARNINGS: NetApp Wednesday, Aug. 13  
EARNINGS: Deere & Co Wednesday, Aug. 13  
EARNINGS: AES Corp Wednesday, Aug. 13  
EARNINGS: Macy's Wednesday, Aug. 13  
EARNINGS: Liz Claiborne Wednesday, Aug. 13  
Initial Unemployment Claims Thursday, Aug. 14 8:30 a.m. Aug. 3-9
SPEECH: Minneapolis Fed President Stern Thursday, Aug. 14 2:30 p.m.
EARNINGS: Agilent Technologies Thursday, Aug. 14  
EARNINGS: Nordstrom Thursday, Aug. 14  
EARNINGS: JC Penney Co Thursday, Aug. 14  
EARNINGS: Autodesk Thursday, Aug. 14  
EARNINGS: Kohl's Corp Thursday, Aug. 14  
EARNINGS: Estee Lauder Cos Thursday, Aug. 14  
EARNINGS: Harman International Industries Thursday, Aug. 14  
EARNINGS: Wal-Mart Stores Thursday, Aug. 14  
Treasury International Capital Report Friday, Aug. 15 9:00 a.m. June
SPEECH: Chicago Fed President Evans Friday, Aug. 15 12:30 a.m.
EARNINGS: Abercrombie & Fitch Co Friday, Aug. 15
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