The week of July 28-August 1 will see a fairly significant amount of US macro data. The major releases will be clustered near the end of the week on Thursday and Friday. Thursday will see the publication of the preliminary GDP for Q2, jobless claims, Chicago PMI and the employment cost index for Q2. The week will be capped by the release of the July non-farm payrolls report and the estimate of the ISM of national manufacturing conditions for that same month. Tuesday will see the release of July consumer confidence survey by the Conference Board and Wednesday will see the ADP estimate of payrolls for July. The week will see another heavy five days of earnings statements with heavyweights such as Disney, Starbucks, Chevron and Berkshire-Hathaway reporting near the end of the week.
Fed Talk
The only Fed speaker scheduled for the week is FOMC Gov. Mishkin who will give an address titled "Whither Federal Reserve Communication," on Monday. As is custom one week ahead of an FOMC meeting beginning Tuesday, there will be a blackout on Fed speak.
Consumer confidence for the month of July should see another 30 days of sagging sentiment among individuals subject to an increasingly difficult job environment. We expect that headline will decline to 49.2 on the back of continued stress among consumers. With the rebate checks spent, there is precious little to offset the real reduction in purchasing power among consumers due to a weak dollar and rising inflation. The aforementioned factors should combine to press the headline estimate of consumer confidence to decade long lows.
GDP Q1 Preliminary Thursday 08:30 AM
The combination of a 1.0% increase in personal consumption and a 1.9% increase in net exports should provide a decent rate of economic expansion during the initial estimate of output for Q2'08. However, the data elsewhere is still relatively weak. Firms carefully managed the purchase of stock and it does appear that inventories contracted at a rate of 0.5% for the quarter. More importantly, due to data suggesting that expenditures on fixed business investment remain absolutely flat and the ongoing contraction in residential investment, we do expect that overall investment should again provide a net drag on overall growth. Thus we expect to see an increase of 2.1% in the preliminary estimate of GDP for the second quarter of 2008.
Employment Cost Index (Q2) Thursday 08:30 AM
Although inflation has continued to work its way through economy, there has been scant evidence that it has yet to put upward pressure on wages. We expect that to be the case again in Q2 when our forecast implies that employment costs will increase 0.8%. Due to a relative lack of bargaining power, labor is in no position to demand higher wages among a weak job market and uncertain economic prospects going forward.
Initial Jobless Claims (Week ending July 26) Thursday 08:30 AM
Initial claims for the week ending 26 July should see a slow and steady uptick back towards 380K. With the four week moving average trending in that direction after a bout of holiday induced data, the weak labor market does not at this time have the capacity to stimulate a move lower for the foreseeable future.
Chicago PMI (July) Thursday 09:45 AM
We expect that a month of weak orders and economic weakness in the upper Midwest should combine to drag down the headline estimate of the July Chicago PMI to 48.6. Our forecast implies that new orders should decline to 49.1 and prices paid should increase to 86.3 for the month. Although, the cost of imported oil eased during the month, the greater concern on a regional basis is the latest round of planned cutbacks in auto assembly schedules in Detroit that should further depress manufacturing activity in the area.
Total Vehicle Sales (July) Thursday-Throughout Day
Hope in the auto sector that rebate checks would provide a modicum of support for domestic sales did not materialize in June and sales took a sharp turn south. On the back of some very pessimistic forecasts out of Detroit we do not anticipate a recovery in demand for new cars anytime soon. Our forecast implies a modest bounce back in July with the sale of domestic autos arriving at 10.1mln units and demand for foreign fuel efficient autos modestly advancing to 13.9mln.
Non-Farm Payrolls (July) Friday 08:30 AM
The labor sector continues to see a steady downward drift and our forecast implies that the market will observe a net loss of -93k jobs in July. We expect that the service sector will see the second negative print in the past three months and further losses in the goods production and manufacturing sector should by the primary catalyst driving employment losses throughout the economy. Given some of the interesting adjustments at the Bureau of Labor Statistics regarding assumptions of job creation in the leisure and hospitality industries in June, we think that the report is ripe for downward revisions over the past two months and this should set the stage for what is shaping up to be another month of negative data from the labor sector.
ISM (July) Friday 10:00 AM
We have grown quite bearish on manufacturing conditions domestically, regardless of the still relatively strong demand from the external sector. Lackluster domestic demand has dragged down the headline reading below 50.0 four times during the first six months of the year. Our forecast indicates that this will be the case again in July when the headline falls to 49.3. We expect new orders to decline to 49.0 and prices paid to increase to 89.5.
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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