The week of August 18-22 will see a very light week of economic data on the calendar. Aside from Dallas Fed President Fisher's comments on the US Economy on Wed, the only potentially market moving macro data for the week will be the Monday release of the PPI and Tuesday publication of the Housing Starts series for July. The remainder of the major data for the week will be released on Thursday when the weekly jobless claims series, the August Philadelphia Fed survey and the June index of leading economic indicators are published.
Fed Talk
The week ahead will see a light schedule of Fed speakers. On Tuesday Dallas President Richard Fisher will speak on the US economic outlook in Aspen, Colorado at 10:00 AM EDT.
Producer Price Index (July) Monday 08:30 AM
The producer price index in July should partially pick up the sharp decline in the cost of oil during the sampling period. We do not think that the market will observe a fall in headline prices associated with the cost of commodities in full until the August sampling period. Thus our forecast implies that a 0.6% m/m and 9.4% increase in headline costs, while the core should see a 0.2% m/m and 4.0% year over year rise in inflation. We expect to see a slight moderation in the cost of gasoline that should be completely offset by an increase in demand for residential electricity. Perhaps more interesting is the pressure that has been building in intermediate costs. On an annual basis, total intermediates were up 14.5% in June, with the core ex food and energy up 8.4% during that same time frame. If oil prices remain at current levels, the market will observe some relief in headline inflation, but the problems in the core will persist for some time to come.
Housing Starts/Building Permits (July) Tuesday 08:30 AM
After a solid June in starts we expect the data to fall back slightly to 965K for the month of July, which would be a multiyear low in the series. Our long term forecast for starts anticipated a decline near the 900K mark. It is our assessment that the starts series should begin to flatten and stabilize in early 2009. The excessive capital stock built up in the housing sector will take years to burn off and housing prices will have to fall well below their long run equilibrium to speed up the adjustment period in the housing sector for starts to see a meaningful recovery. That being said, the flattening out of the trend in starts should begin to reduce the net drag on overall growth later in this year, which is one of the few positive signs in the residential investment sector in some time.
Initial Jobless Claims (Week ending Aug 16) Thursday 08:30 AM
Initial claims over the past two weeks has surged well above the critical threshold of 400K and the less volatile four week moving average has increased to 440K. The strong move to the upside may partially be a function of legislative changes that have enabled continuing files to be identified and initial filers. This implies that the market should see the headline moderate over the coming weeks towards the four-week moving average. Thus we expect a 440K print for the upcoming week.
Philadelphia Fed (August) Thursday 10:00 AM
We anticipate that the general business activity index inside the Philadelphia Fed's survey of manufacturing activity in the region should see a modest advance and arrive at -11.18 for the month of August. The headline is not a composite of the underlying questions, but a single stand-alone question that is a fairly solid indicator of purchasing managers sentiment inside the region. The fall in the price of oil should provide a modest boost to sentiment in the survey, but that will partially be offset by lingering concerns over domestic demand for manufactured goods, slowing orders from abroad and still difficult environment for new orders.
Leading Economic Indicators (July) Thursday 10:00 AM
The Conference Board's index of leading economic indicators should arrive flat for the month. The recent volatility in equities and the difficult macro environment provide little suggestion that there has been a material turn for the better in the overall economy. Aside, from what may prove to be a transitory decline in the cost of imported oil, the net contributors to the leading index are all still painting a very dreary economic picture. Our forecast implies that the headline reading for the month of July will be 0.0.
Joseph Brusuelas
Chief Economist
Merk Investments
http://www.merkfund.com/
The views in this article were those of Axel Merk as of the newsletter's publication date and may not reflect his views at any time thereafter. These views and opinions should not be construed as investment advice nor considered as an offer to sell or a solicitation of an offer to buy shares of any securities mentioned herein. Mr. Merk is the founder and president of Merk Investments LLC and is the portfolio manager for the Merk Hard Currency Fund. Foreside Fund Services, LLC, distributor.
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