RTTNews - The recovery hopes hit a snag after some disappointing readings clouded the economic outlook further in the past week. Consumers are apprehensive and job market is nowhere near where we can call it comforting, with rising oil prices apparently keeping them at bay. An improvement in labor market is also considered as a precursor for reviving the sagging confidence of consumers.
However, one positive development was some semblance of stabilization that is emerging on the housing horizon, with the past week's reading confirming the thought. Economic readings from Asia continue to be encouraging. Japan's industrial production rose 5.9% month-over-month and the Bank of Japan's Tankan survey painted a positive picture on the future. Danske Bank expects a stronger-than-expected rebound in global growth in the second half of 2009.
The non-farm payrolls report for June highlighted the precarious position the U.S. economy is in. Non-farm employment fell a massive 467,000, taking the total job losses in the current down cycle to 6.46 million. Government payrolls fell by 52,000, reflecting the lay-off of workers hired for preparing the 2009 census.
Economic growth is likely to be supported more by an expansion of workweek, as in the current recession, part time employment increased due to employers trying to hold fast to their employees rather than firing them outright. The unemployment rate, which rose only slightly in June to 9.6% in June, remains posed to overshoot the 11%-level in the coming months.
The S&P Case/Shiller home price index fell 18.1% year-over-year in April compared to expectations for an 18.6% annual decline, and marking the slowest annual rate of decline since October 2008. All twenty of the cities survey showed price declines on a year-over-year basis, while on a month-over-month basis, eight cities reported price gains.
Pending home sales rose 0.1% month-over-month in May, according to a report released by the National Association of Realtors. The previous month's gain was revised up to 7.1% from the initially reported 6.7% increase.
However, construction spending declined 0.9% month-over-month in May, with private construction spending and public construction spending dropping 1% and 0.6%, respectively. Among private residential construction, spending on single-family construction declined for the 39th consecutive month, dropping 4.5% compared to a 9.6% drop in multi-family construction spending. At the same time, private non-residential construction rose 0.5%.
Te Institute for Supply Management said its index of manufacturing activity rose for the sixth straight month to 44.8 in June, up about 2 points from May. Economists had expected a reading of 44.6. The new orders index dipped 2 points to 49.2, dropping below the 50 mark once again, and the orders backlog index eased to 47.5. On the other hand, the production index rose 6.5 points to 52.5. On a positive note, the employment index climbed 6.4 points to 40.7.
Meanwhile, the ISM-Chicago's survey revealed that the business barometer index rose to 39.9 in June from 34.9 in May. Economists had expected a reading of 39. The new orders index climbed 4.3 points to 41.6 and the order backlog index rose more than 11 points to 37.6. Despite a 4-point increase, the employment index remained at depressed levels at 28.9. The rise in the inventories index for the second straight month seems to support the fact that inventory depletion that characterized much of the fourth quarter of 2008 and the first quarter of 2009 may be coming to an end. Reflecting the recent increase in commodity prices, the prices paid index increased by about 7 points.
The Conference Board's consumer confidence index came as a dampener, as the index unexpectedly fell to 49.3 in June compared to 54.8 in May. While the present situation index fell 5 points to 24.8, marking the lowest level since March, the expectations index declined by 6 points to 65.5. The data suggests that difficult labor market conditions and high debt levels are continuing to weigh on consumers.
The unfolding week's economic is fairly light, with very few reports due out to be released. The Institute for Supply Management's services sector index for June, the preliminary July reading of the Reuters/University of Michigan's consumer sentiment index, the weekly jobless claims report and the Treasury auction of 3-year note, 10-year note and 30-year bond, scheduled for Tuesday, Wednesday and Thursday, respectively could be closely watched by traders, as they attempt to read the pulse of the economy.
Additionally, the trade balance report for May, the Labor Department report on import and export prices for June, the Federal Reserve's consumer credit report for May and the wholesale inventories report for May are also likely to be in the investors' radar. Traders may also stay focused on comments by Federal Reserve Governor Elizabeth Duke, who is scheduled to make a speech on Thursday.
The ISM's services survey is expected to show slightly improved conditions in the sector, although it is still too early to call for an expansion. The sector is expected to have benefited from a rise in equity markets and a narrowing in credit spreads. However, weakness in freight activity, which is impacted by declining inventory levels, should act as a dampener.
The trade balance report could show a small widening in the trade deficit for May, as import bill for petroleum products is continuing to rise amid the increase in crude oil prices. However, volume decline should offset the increase to some extent. Given expectations that the U.S. economy will revive faster than the other economies, in the coming months, imports are likely to see a revival before exports.
There is unlikely to be much change in the Reuters/University of Michigan's consumer sentiment index, as still-weak labor market conditions are hurting real income growth and in turn's consumers' morale and their willingness to spend.
The ISM is scheduled to release the results of its non-manufacturing survey at 10 AM ET on Monday. The non-manufacturing index is likely to show a reading of 46 for June.
The ISM's services sector survey for May showed that the purchasing managers' index came in at 44 compared to the expected reading of 45 and the month-ago's 43.7. The business activity index declined 3 points to 42.4. On the other hand, the new orders index declined to 44.4 in May from 47 in the previous month and the index of backlog of orders moved down to 40. On an encouraging note, the employment index moved to its highest level since October despite its meager 2 point-increase.
There are no important economic reports scheduled to be released on Tuesday.
The Mortgage Bankers' Association's purchase applications index, which measures applications at mortgage lenders is due to be released at 7 AM ET on Wednesday.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 1st at 10:30 AM ET on the same day.
The EIA said last week that crude oil stockpiles declined by 3.7 million barrels to 350.2 million barrels in the week ended June 26th. Inventories of crude oil remained above the upper end of the average range.
Gasoline inventories rose by 2.3 million barrels and were in the lower half of the average range, while distillate stockpiles climbed by 2.9 million barrels and were above the upper boundary of the average range. Refinery capacity utilization averaged 86.4% in the week ended June 26th compared to 86.3% in the previous week, although it is off significantly from 89.4% in the year-ago period.
There has been a pick up in the demand environment, with gasoline demand averaging 9.2 million barrels per day over the four-week period ended June 26th, up 0.9% from the same period last year. Distillate fuel demand was still week, falling 9.4% in the same period.
The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET on the same day. Consumer credit for May is likely to show a decline of $7.5 billion.
In April, consumer credit declined at an annual rate of 7.5%, with revolving credit, which is linked to credit card loans, sliding by 11%. Meanwhile, non-revolving credit was down by a more modest 5.25%.
Duke is scheduled to speak to the FDIC's Interagency Minority Depository Institutions National Conference in Chicago at 8 AM ET on Thursday.
The Labor Department is due to release its customary jobless claims report for the week ended July 4th at 8:30 AM ET on Thursday.
Initial claims for unemployment benefits declined 16,000 to 614,000 in the week ended June 27 from the upwardly revised reading of 630,000 for the previous week. Economists expected a decline in claims to 615,000 from the initially estimated figure 627,000 for the previous week.
The 4-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations in the data, declined 2,750 to 615,250. Continuing claims, which measure people receiving ongoing unemployment help, fell 53,000 in the week ended June 20th to 6.702 million.
The Commerce Department is due to release its wholesale inventories report at 10 AM ET on the same day. Economists expect wholesale inventories at the end of May to show a 1% decline.
In April, wholesale sales edged down 0.4% month-over-month to $309.4 billion from the revised March level. Annually, sales were declined a steeper 19.5%. Sales of non-durable goods edged up 0.8%, helping to offset the weakness in durable goods sales to some extent. Meanwhile, wholesale inventories at the end of April were down 1.4% month-over-month and were trailing 6.2% on an annual basis. The April inventories to sales ratio was 1.31 compared to 1.12 in the year-ago period.
The trade gap data for May is due out at 8:30 AM ET on Friday. Economists estimate that the trade gap widened to $30 billion in the month. The trade gap measures the difference between imports and exports of both tangible goods and services.
The trade deficit widened to $29.2 billion in April from an upwardly revised deficit of $28.5 billion for March. Economists estimated that the trade gap widened to $29 billion from the originally reported deficit of $27.6 billion for the previous month.
The April exports were down $2.8 billion to $121.1 billion, while imports fell $2.2 billion to $150.3 billion. The goods deficit increased $0.9 billion to $40.1 billion, while the services surplus increased $0.2 billion to $10.9 billion.
The export & import price indexes for June, which gives the changes in the prices of non-military goods and services traded between the U.S. and the rest of the world, are due out at 8:30 AM ET on Friday.
Import prices rose 1.3% month-over-month in May compared to a downwardly revised 1.1% growth in the previous month. The increase reflected an 8.3% increase in petroleum import prices, while non-petroleum import prices were up a mere 0.2%. On a year-over-year basis, import prices were down 17.6%.
Export prices rose at a 0.6% rate in May compared to a downwardly revised 0.4% growth in April. Agricultural export prices climbed 3.6% compared to 0.3% growth in export prices of non-agricultural commodities. On a year-over-year basis, export prices declined 6.5%.
The Reuters/University of Michigan's preliminary report on the consumer sentiment index for July is scheduled to be released at 10 AM ET on the same day. Consumer sentiment is expected to edge up slightly, with economists forecasting a value of 71, little change from the previous month's 70.8.
Treasury Secretary Tim Geithner is due to testify before the joint hearing of the House Financial Services and Agriculture Committees on derivatives regulation at 10 AM ET.
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