RTTNews - Economic indicators from the global economies were reassuring. GDP reports released from Germany and France last week showed that the two major euro zone economies emerged out of recession in the second quarter. Earlier in the day, the Cabinet Office of Japan reported that the domestic economy revived from a four quarter-long recession, helped mainly by a rebound in exports and government investment, which was achieved on the back of government stimulus efforts.

The artificial prop provided by stimulus measures throw in the question of whether the growth could be sustained. That said, economists unequivocally believe that government spending will continue to tick up, thereby averting any potential contraction. Sentiment indicators of euro zone are continuing to see uptrend, suggesting that the region is likely to show strong growth in the second half of 2009. According to Commerzbank, a recovery in external demand and a reversal in inventory cycle will benefit the manufacturing sector, while the services sector is likely to see a slower progress.

Mixed reports released from the U.S. have strengthened the camp of economists calling for a double-dip recession. Their argument is founded on the theory that a sustainable recovery is out of question if consumer spending, considered as the main pillar of growth, does not show a turnaround. Although real consumption spending is expected to see a modest growth in the third quarter, thanks to incentive-based rebound in auto sales, the outlook for consumer spending beyond the third quarter hinges on the labor market and its ability to support real income growth.

The focus going forward is likely to be on the job market to see if job losses could be stalled to support real income growth and in turn consumer spending and the overall economic growth.

The Commerce Department's retail sales report released last week belied expectations for a strong rebound in July sales despite a 2.4% increase in auto sales. In final analysis, spending on autos deprived consumers of money that could have been spent on other retail commodity categories. All important categories, including electronics, furniture, sporting goods, building material and department stores showed sales declines. Core retail sales that remove volatile gas, building material and autos showed a 0.2% decline.

Coupled with the muted retail spending data, the University of Michigan's consumer sentiment report caused some uneasiness among traders over consumer spending, which has a lion's share in total GDP. The preliminary consumer sentiment index for August fell to 63.2 in August from 66 in July, marking the weakest reading since March, when it was 57.3. The current conditions index fell 5.6 points to 64.9, while the expectations index eased 1.1 points to 62.1.

Meanwhile, on a positive note, industrial production rose for the first time in October 2008, rising 0.5% month-over-month in July, with the bulk of the gain coming from a 20.1% surge in auto production. Higher auto production propelled industrial production, which surged up 1%. If auto production is stripped off, manufacturing output was up a mere 0.2%. Capacity utilization edged up four-tenth of a percentage point to 68.5%. The unseasonably cool weather led to a 2.4% drop in utility output.

The Labor Department's non-farm productivity report showed that productivity rose 6.6% in the second quarter. The rate of decline in output slowed to 1.7% following an 8.8% drop in the first quarter, while employee hours declined 7.6% compared with a 9% drop in the previous quarter. Unit labor costs declined 5.8%, a much steeper decline than the 2.5% drop estimated by economists.

Inventories continue to show draw -downs, supporting claims that the third quarter will see a strong rebound from inventory build up. Wholesale inventories declined by a bigger-than-expected 1.7% month-over-month in June. The previous month's numbers were revised down to show a 1.2% drop. However, wholesales rose 0.4%, resulting in an inventory-to-sales ratio of 1.26, the lowest level since October 2008. Additionally, business inventories report showed a bigger-than-expected 1.1% drop in business inventories in the month of June. However, business sales rose 0.9%, resulting in an inventory to sales ratio of 1.38 in June compared to 1.26 in the year-ago period.

The results of the Treasury's 3-year note auction was encouraging, with the bid-to-cover ratio at a decent 2.89 to 1 and the yield at 1.780%. The 30-year bond auction also elicited good response, with the yield slightly below where it was trading and the bid-to-cover ratio at a fairly decent 2.54. However, the 10-year note auction received a lukewarm response, with the yield at 3.734% and the bid-to-cover ratio at 2.49%.

The trade deficit widened to $27 billion in June from $26 billion in May, with the wider deficit reflecting a faster rate of growth in imports than the exports. Excluding petroleum, imports were down 1%. The export growth was led by a 7.9% increase in exports of semiconductors, a 5.2% increase in telecommunications equipment and a 5% increase in exports of industrial supplies.

The Fed's post-meeting policy statement turned out to be market-positive, mainly due to its view that economy may be moving towards stabilization. While toeing along the expected lines with respect to interest rates, the FOMC said in its post-meeting policy statement that economic activity is leveling out, an improvement from its previous opinion that the pace of contraction is slowing. There weren't any major changes to the references the committee made towards other measures.

Regarding its Treasury securities purchasing program, the central bank said the committee would gradually slow the pace of these transactions. The central bank anticipates the full amount of $300 billion to be purchased by the end of October. The FOMC reiterated its commitment to retain interest rates at exceptionally low levels for an extended period.

First time claims for unemployment benefits rose to 558,000 in the week ended August 8th from a revised reading of 554,000 in the previous week. However, continuing claims for the week ended August 1st showed a decline.

Pricing pressures are under control, as revealed by the Labor Department's consumer price inflation report, which showed that consumer prices behaved in-line with expectations in July.

Housing and manufacturing survey reports are likely to attract attention in the unfolding week, as traders attempt to get more clarity on economic conditions. The Commerce Department's housing starts report for July, the National Association of Realtors' existing home sales report for July, the National Association of Homebuilders housing market index for August and the results of the August manufacturing surveys of the New York Fed and the Philadelphia Fed are among the reports that are likely to be in the spotlight.

Apart from these reports, the Labor Department's producer price index report for July, the weekly jobless claims report and the Conference Board's leading indicators index for July may also be closely watched by the markets. Traders may also stay tuned to Federal Reserve Chairman Ben Bernanke's public address, scheduled to be delivered on Friday.

The indexes of manufacturing activity in New York and Philadelphia are likely to show improvement in August from the month-ago levels, adding to evidence that manufacturing activity is stabilizing.

The July housing starts report is likely to support expectations that housing activity is moving towards a bottom and may be on track for gaining some traction towards a recovery. Although a full-scale recovery is unlikely due to tight credit conditions for commercial real estate loans, some degree of steady improvement could be expected in the coming months.

Existing home sales are also likely to improve, given the increase in the pending home sales index for June. The consensus estimates call for the seasonally adjusted annual rate of existing home sales to reach the 5 million mark for the first time in nine months. Overall demand is slowly starting to improve, and the improvement along with a relatively better affordability should reduce inventories, which in turn will slow down the drop in median home prices.


The results of the New York Federal Reserve's empire state manufacturing survey, which elicits response from 200 manufacturing executives in New York state, is slated to be released at 8:30 AM ET on Monday. The headline general business conditions index for August is expected to come in at 2.2.

Conditions for New York manufacturers were roughly flat in July, with the index of activity in the sector rising to a level close to zero. The general business conditions index rose to a negative 0.6 in July from a negative 9.4 in June, with a negative reading indicating a contraction in activity. Economists had been expecting a more modest increase to a reading of negative 5.0.

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for July at 9 AM ET on the same day.

The National Association of Homebuilders' is scheduled to release the results of their survey on homebuilders' confidence at 1 PM ET on the same day.

The housing market index rose 2 points to 17 in July compared to 15 in June, with the July reading marking the best since September 2008. The present conditions index rose 3 points, while the future expectations index remained unchanged. The index of prospective buyer traffic edged up a point.


A report on housing starts, which refer to the number of privately-owned new homes on which construction has been started over some period, and building permits, which are the number of permits issued for new housing units each month, is slated to be released at 8:30 AM ET on Tuesday. Economists estimate housing starts of 598,000 for July.

In June, Housing starts rose 3.6% month-over-month to 582,000 from a downwardly revised reading of 562,000 for May. Economists had expected housing starts to have declined to 530,000 from the initially estimated reading of 532,000 for April.

Single-family starts rose 14.4%, while starts of buildings with five units or more were 101,000. Annually, housing starts slumped 52%. Building permits rose 8.7% month-over-month to 563,000.

The U.S. Labor Department is scheduled to release its report on the producer price index for July at 8:30 AM ET on the same day. The index measures the average change over time in the prices received by domestic producers of goods and services. Economists expect the headline index to show a 0.2% decline and the core index to show 0.1% growth.

Producer prices rose 1.8% month-over-month in June following a 0.2% increase in May, while the core producer price index climbed 0.5%. Economists had expected a 1% increase in producer prices and a 0.1% increase in core producer prices.


The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET on Wednesday.

The weekly oil inventory report that showed a 2.5 million barrel-increase in crude oil stockpiles in the week ended August 7th. Inventories of crude oil were above the upper boundary of the average range for this time of the year.

Meanwhile, gasoline stockpiles fell by 1 million barrels, but were still in the upper half of the average range. At the same time, distillate inventories edged up by 0.8 million barrels, remaining above the upper boundary of the average range. Refinery capacity utilization averaged 84.6% over the four weeks ended August 7th compared to 85.7% in the previous week.


The Labor Department is due to release its customary weekly jobless claims report for the week ended August 15th at 8:30 AM ET on Thursday. Economists estimate claims to have eased to 553,000 in the week.

First-time claims for unemployment benefits showed a small increase in the week ended August 8th, while continuing claims fell.

The report showed that initial jobless claims rose to 558,000 from the previous week's revised figure of 554,000. Economists had been expecting jobless claims to edge down to 545,000 from the 550,000 originally reported for the previous week. However, the continuing claims for the week ended August 1st fell 141,000 to 6.202 million.

The Conference Board is scheduled to release a report on the U.S. leading index for July at 10 AM ET on the same day. The consensus estimate calls for a 0.6% increase in the leading indicators index for the month.

The leading indicators index rose 0.7% in June, faster than the 0.5% increase expected by economists. With the increase, the index has now risen for three straight months. The May reading was upwardly revised to show 1.3% growth. The interest rate spread continued to contribute to growth, while suggesting some stability in the housing market, building permits began to positively contribute to growth.

The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 AM ET on the same day. Economists expect the diffusion index of current activity to show a reading of -2 for August.

In July, the business activity index fell to -7.5 from 2.2 in June. The employment index declined by 3.5 points to -25.3, while the inventories index was little changed at -15.4. Despite new orders and order backlogs indexes improving from month-ago levels, they still remain negative. The 6-month outlook index fell to 51.9 in July from 60.1 in June.


The National Association of Realtors is scheduled to release its report on existing home sales for July at 10 AM ET on Friday. Economists estimate existing home sales of 5 million for the month.

Existing home sales rose 3.6% to a seasonally adjusted annual rate of 4.89 million units in June. Economists had estimated sales of 4.84 million for the month. May sales were revised down by 50,000 to 4.72 million units. Sales have been increasing for each of the past three months and existing home sales are now at their highest level since October 2008.

The months-supply of new homes fell to 9.4 in June from 9.8 in May and is now at the lowest level since December 2008. Distressed sales accounted for 31% of the overall sales. The median price of an existing home rose to $181,800, although it is down 15.4% from the year-ago period.

Bernanke is due to speak on 'the Year of Crisis' at Kansas City Fed's annual Jackson Hole conference at 10 AM ET on the same day.

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