“Data Deluge” is the phrase that Deutsche Bank’s Joseph LaVorgna uses to describe what’s coming in the week ahead in the economy.
Last week was incredibly light. Consumer credit and initial claims were pretty much the only two datapoints.
This week will be heavy.
So what’s coming up?
July retail sales (Tuesday) will be key and should show the first positive month-on-month increase since March. Headline sales (+0.4% forecast vs. -0.5% previously) should be tempered by a slight decline in auto sales in the month. However, we anticipate a +0.5% gain ex-autos and there is likely some upside risk to that number—our chain-store sales tally accelerated meaningfully in July (+8.5% vs. +4.2% in the prior month), indicating that ex-auto sales could be closer to +1.0%. Along with retail sales, we get July producer prices and June business inventories. We expect the former will rise +0.2% for the headline and core metrics, while the latter should remain flat, reflecting weak wholesale inventories.
The inflation data continue on Wednesday with the July CPI report. Similar to the aforementioned PPI, we anticipate a modest +0.2% increase for both headline and core prices. If our forecast proves correct, headline inflation would decelerate to +1.6% on a year-over-year basis, the lowest level since December 2010. However, core inflation would remain near 2.2% which is modestly above policymakers’ long-term target. As we mentioned in our commentary last week, unit labour cost growth appeared abnormally high in H1 (+3.7%), but this could reflect a much higher reading on NAIRU. This is something that FOMC Committee members will need to consider carefully when weighing the risks/rewards of further QE. We believe monetary policy is mis-calibrated relative to the long-term potential growth rate of the economy.
Fed policymakers will also consider the health of the manufacturing sector going into the September meeting, especially in light of the sub-50 readings on the ISM over the past two months. The New York Fed Empire survey (+9.0 vs. +7.4) and industrial production data (+0.6% vs. +0.4%), both reported Wednesday, should show a modest rebound in activity, as should Thursday’s Philadelphia Fed survey (Unchanged vs. -12.9). The downward revision to inventories in Q2 coupled with the upward revision to final sales bodes well for production in the current quarter. We would be particularly encouraged to see new orders recover in the regional manufacturing series.
Thursday also brings July housing starts (0.750M vs. 0.760M) and permits (0.750M vs. 0.760M). On Friday, we get preliminary consumer sentiment for August (73.0 vs. 72.3), and this should see a mild boost from a rising stock market and falling jobless claims; the same can be said for July leading indicators (+0.1% vs. -0.3%).
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