Vital Signs: Foreign Trade Keeps Recession at Bay
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.
|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||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|