Economic Calendar (all times EDT)
- No major economic reports
- NFIB Small-Business Optimism Index, 7:30 a.m.
- Productivity and Costs, 8:30 a.m.
- FOMC Meeting Announcement, 2:15 p.m.
- Wholesale Trade, 10 a.m.
- EIA Petroleum Status Report, 10:30 a.m.
- Treasury Budget, 2 p.m.
- International Trade, 8:30 a.m.
- Jobless Claims, 8:30 a.m.
- Retail Sales, 8:30 a.m.
- Consumer Sentiment (University of Michigan), 9:55 a.m.
- Business Inventories, 10 a.m.
My attention turns to consumer-oriented economic indicators this week with the release of retails sales figures, the University of Michigan's Consumer Sentiment Index, and the NFIB's Small-Business Optimism Index. These reports provide the earliest read on how consumer confidence may have been rattled during the debt-ceiling debate.
I'll also look at the Productivity and Costs report -- more productivity is good for profits, less productivity is good for jobs. International Trade gives clues about how trading partners are faring with their budgetary woes and how that affects U.S. exports, and tells whether we are importing less, which may help determine if domestic consumer demand has weakened. This report is a bit dated as it covers June; however, it is a missing piece for second-quarter GDP. So when the next estimate for second-quarter GDP is released (it undergoes three revisions), it will include more-complete data from this report for imports and exports.
There is a Fed meeting and announcement on Tuesday. There's been some chatter about another round of quantitative easing, and that caused the markets to spike from intraday lows last Wednesday. I really don't think QE3 will do a lick of good, but I do think Fed officials are wary of undertaking something of questionable efficacy when inflation is already above their 2% target range. Perhaps if inflation were lower, they might resume quantitative easing, but one of the primary reasons the Fed did the first two rounds was to reignite low inflation. They will have a much tougher argument for QE3. Still, they may feel compelled to do something, and Bernanke has signaled that the Fed may have room to ease -- even if it involves words, not dollars.
I'm interested in whether the Fed has changed its tune about economic growth picking up in the second half. In any forecast, economic or otherwise, I need to know how and why something is going to occur. In previous forecasts, Fed officials have failed to convince me of the logic for how and why economic growth would improve in the second half. What, specifically, are the catalysts for that? Instead, we have catalysts that make the opposite happen: Economic growth could contract -- though it is not baked into the cake, so to speak.
The consumer sentiment numbers Friday will give an early hint as to what consumers are feeling. I caution you that I generally don't like to "trade" off the economic impact (or the effects on a given retailer) based on what people spout off to survey takers. What they actually do is what matters, and there isn't always a perfect correlation between sentiment measures and consumer spending.
For that, look at retail sales. Figures for July come out Friday. I want to see what August looks like before I determine a trend, so I may have to wait until September's release to discern a direction. One reason that spending patterns may not have changed direction is because the stock market didn't take a turn for the worse until recently. That affects wealthier consumers' spending habits. The second reason is that the debt-ceiling debate didn't get ugly until later in July, so a full month of data can obscure that trend. That said, the weak confidence we see in the Michigan measure might already filter through to soft retail sales.
This is important: Don't just look at the headline for retail sales. It includes all sorts of things -- food, gasoline, clothing, electronics, autos, furniture and more -- and it is not adjusted for inflation. I like to strip out the "essentials" of gas and food, which are heavily influenced by price changes, to look at discretionary spending habits as this gives more of a sense of spending patterns that are economically sensitive. A slight uptick in hourly earnings in Friday's payroll data can give a small boost to retail sales, or the funds could have been diverted into savings, as seen in the most recent Personal Income and Outlays report. I also strip out auto sales because they are heavily influenced by promotional events and may be disrupted by inventory shortages. I look at auto sales separately from smaller-ticket purchases that aren't as volatile from month to month.
You should pair spending patterns in the retail sales report with price changes by product type in the Consumer Price Index. Unfortunately, the CPI data won't be published until Aug. 18. Keep in mind that inflation adjustments are important -- in June's Personal Income and Outlays report, for example, it was widely reported that consumer spending fell by 0.2%. While many were alarmed, I pointed out in a Columnist Conversation post that inflation also fell by 0.2%, so real spending was actually flat and not as bad as it seemed. For example, when you look at retail sales numbers for June, spending on clothing jumped 0.7%. That sounds good, but the CPI data for the same month showed clothing prices increased 1.4%. In volume terms, consumers actually bought less in clothing, not more. I might not expect spectacular retail sales this month, but consumers are unpredictable.