According to Sherry Cooper, the depth of the U.S. recession and the weakness of the recovery are the consequence of the housing depression. She highlights the point that the interest-rate sensitive housing market is also the key transmission mechanism of monetary policy.
The meltdown experienced by the housing market has caused financial distress, with households unable to refinance and take advantage of the historically low mortgage rates. Delinquency resulting from financial stress has led to massive losses for mortgage lenders and a reduction in revenues for state and local governments. It is estimated that it would take a long, long time before the housing imbalances can be redressed.
Although the economic outlook has been far from comforting, there is a solace that it will not dip back into a recession. With the commodity prices off their highs, a rebound is on the cards in the fourth quarter after the anticipated weakening of growth in the third quarter.
Danske Bank is of the view that the West will be left to contend with slow growth rated and elevated unemployment levels for a long time. Consequently, interest rates in these nations are likely to be kept low for the foreseeable future, suggesting low bond yields as well.
Last week, the Commerce Department reported that U.S. new home sales fell 0.7 percent month-over-month to a seasonally adjusted annual rate of 298,000. On a more negative note, the previous three months' readings were downwardly revised. Inventories measured in terms of months of supply remained unchanged at 6.6, as inventories fell slightly in absolute terms.
The second quarter GDP growth was downwardly revised to a 1 percent annualized pace, reflecting a slight downward revision to fixed asset investment and marked downward revisions to inventories and net exports. However, government spending and personal consumption were upwardly revision.
Meanwhile, the revised reading of Reuters/University of Michigan's survey showed an upward revision to preliminary estimate, with the consumer sentiment index coming in at 55.7 in August, up 0.8 points from the initial estimate, but down 8 points from July.
The unfolding week's busy calendar has a few first-tier economic reports that can move the market. Notable among them are the Labor Department's non-farm payrolls report due to be released on Friday, the regularly scheduled weekly jobless claims report, the results of the Institute for Supply Management's manufacturing survey, the ADP private sector employment report, the National Association of Realtors' pending home sales index for July and the Commerce Department's personal income and spending report.
Traders may also focus on the minutes of the August FOMC meeting scheduled to be released on Tuesday, auto sales for August and the Conference Board's consumer confidence index for August. The Commerce Department's factory goods orders report, the results of the ISM-Chicago's purchasing managers' survey, the Labor Department's final second non-farm productivity and costs report and Fed speeches round up the economic events of the week.
Job growth may have slackened in August, as evident from the pick up in the pace of announcements concerning job cuts. Additionally, the uncertain economic and fiscal conditions have increased caution among hirers. At the same time, BMO Capital Markets expects the jobless rate to remain unchanged due to a drop in the participation rate and an increase in the number of discouraged workers.
Economists expect the Conference Board's consumer confidence index for August to show a modest decline. The focus is likely to be on the "jobs-hard-to-get" measure, as traders attempt to gauge the deterioration in labor market conditions amid the intensification of debt woes in Europe and the U.S.
Although Federal Reserve Chairman Ben Bernanke's Jackson Hole address has shed further light on the central bank's monetary policy and economic outlook, traders may still sift through the minutes to see if there were sympathizers for the three voting members who dissented. More members with a hawkish lenience may suggest reduced probability for further stimulus measure such as the one the markets are anticipating.
Meanwhile, the Institute for Supply Management's survey is expected to suggest that manufacturing activity contracted in August for the first time since the economy emerged out of the recent recession.
Monday
The Bureau of Economic Analysis is due to release its personal income & outlays report for July. Economists expect the report, which is due out at 8:30 am ET, to show that personal income rose 0.3 percent month-over-over in July, while personal spending may have increased 0.5 percent.
In June, consumer spending declined 0.2 percent month-over-month, although real spending remained flat. Nominal spending dipped into negative terrain for the first time since September 2009. Personal income rose 0.1 percent in nominal terms and was 0.3 percent higher in real terms. Meanwhile, the monthly and annual rates of core price consumption expenditure were 0.1 percent and 1.3 percent, respectively.
Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to have declined by 1 percent in July.
In June, the pending home sales index rose by 2.4 percent month-over-month. Pending home sales rose in the West and the South, while the Northeast and the Midwest saw declines in sales.
Tuesday
The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 am. Economists expect a 4.4 percent year-over-year decline in the 20-city composite house price index for June.
The house price index for May fell 4.51 percent year-over-year on an unadjusted basis. On a monthly basis, the index fell a seasonally adjusted 0.05 percent.
The Conference Board is scheduled to release its consumer confidence report for August at 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index fell to 57 in August.
The consumer confidence index rose 1.9 points, though remaining at a depressed level of 59.5 in July. The present situation index declined for the third straight month to 35.7, a 5-month low, while the expectations index rose 3.8 points to 75.4, the first increase since April.
Minneapolis Federal Reserve Bank President Narayana Kocherlakota is due to speak on the economic outlook and leverage to the National Association of State Treasurers in Bismarck, North Dakota, at 12:15 pm.
The Federal Reserve is scheduled to release the minutes of its August 9th Federal Open Market Committee meeting at 2 PM ET.
Following its August meeting, the Fed acknowledged the slowdown in growth by altering its commentary, stating that economic growth had been considerably slower than the committee had expected. The Fed also noted the uptick in the unemployment rate and the deterioration in labor market conditions. It was observed that consumer spending had flattened out compared to the Fed's view in June that it was expanding.
The central bank also noted that inflation has moderated after seeing a pick up earlier in the year. The economic outlook of the Fed seems to be less sanguine now, as it sees a slower rate of recovery in the coming quarters. Meanwhile, the Fed is also of the view that downside risks to the economic outlook have increased.
Against this backdrop, the FOMC quantified the extended period phrase so as to suggest that interest rates will be maintained at exceptionally low levels of 0-0.25 percent until at least the middle of 2013. This time around, there were 3 dissenters among the voting FOMC members, including Richard Fisher, Narayana Kocherlakota and Charles Plosser, who preferred to retain the extended period phrase.
Wednesday
The ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 am ET. The report is usually released two days prior to the Labor Department's employment report. The consensus expectations are for an addition of 110,000 jobs by the sector in August.
The results of the Institute of Supply Management-Chicago's business survey for August are scheduled to be released at 9:45 am ET. Economists expect the business barometer index based on the survey to decline to 54.
The Chicago business barometer fell 2.3 points to 58.8 in July. The production and new orders indexes fell 2.6 points and 1.8 points, respectively to 64.3 and 59.4, while the order backlogs index rose 6.4 points to 55.7. Employment conditions worsened, as reflected by an 8.9-point drop in the employment index to 55.9.
The Commerce Department is due to release its report on factory goods orders for July at 10 am ET. Economists estimate a 2 percent increase in orders for factory goods.
In June, factory goods orders fell 0.8 percent month-over-month, with durable goods showing a 1.9 percent drop. Meanwhile, new orders for U.S. manufactured durable goods, which make up the bulk of factory goods orders, increased significantly in July, erasing a drop in orders in June that was less severe than initially reported. Durable goods orders came in at $201.5 billion, an increase of $7.7 billion or 4 percent from the previous month.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended August 26that 10:30 AM ET.
Crude oil stockpiles fell by 2.2 million barrels to 351.8 million barrels in the week ended August 19th. Despite the drop, inventories were above the upper limit of the average range.
Distillate inventories increased by 1.7 million barrels, remaining above the upper limit of the average range. Meanwhile, gasoline inventories rose by 1.4 million barrels and remained in the upper limit of the average range. Refinery capacity utilization averaged 89.7 percent over the four weeks ended August 19th compared to 89.1 percent over the previous four weeks.
Thursday
Individual automakers are scheduled to release their monthly U.S. sales results for August. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month. Economists expect domestic vehicle sales of 12.1 million for August.
The Labor Department is due to release its customary jobless claims report for the week ended August 27th at 8:30 AM ET. Economists expect claims to decline to 407,000.
New claims for U.S. unemployment insurance jumped over the last week, according to figures released by the Labor Department.
About 417,000 Americans filed new claims for unemployment insurance in the week ended August 20, an increase of 5,000 from the previous week's revised figure of 412,000 new claims. Most economists had actually predicted a drop in new claims to 405,000 from the 408,000 originally reported for the previous week.
The U.S. Labor Department is also scheduled to release its final second quarter non-farm productivity and unit labor costs at 8:30 AM. Economists expect an upward revision to preliminary figures, with the drop in productivity estimated at 0.5 percent, while unit labor costs is expected to have increased by 2.6 percent.
Preliminary estimates showed that U.S. worker productivity saw a modest decrease in the second quarter of 2011, with the report also showing that productivity growth in the first quarter was revised to show a drop.
Worker productivity fell by 0.3 percent in the second quarter compared to a revised 0.6 percent decrease in the first quarter. Meanwhile, unit labor costs rose by 2.2 percent in the second quarter following a revised 4.8 percent increase in the first quarter.
The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 am ET. Economists expect the index to show a reading of 48.5 for August.
Manufacturing activity expanded at its slowest pace in 2 years in July. The manufacturing index fell to 50.9 in July from 55.3 in June, while economists had expected a more modest decline. The new orders index slipped 2.4 points to 49.2 and the order backlogs index retreated further into contraction territory, while the production index declined 2.2 points to 52.3. The employment index also fell, dropping 6.4 points to 53.5.
The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 0.1 percent increase in July.
Construction spending rose 0.2 percent month-over-month in June. The May reading was upwardly revised to show an increase as opposed to the decline reported earlier. The 0.8 percent increase in private construction spending offset a 0.7 percent drop in spending on public construction. Within the private construction category, residential construction spending slipped 0.3 percent.
Friday
The Labor Department is scheduled to release its monthly non-farm payroll report at 8:30 am ET. Economists expect non-farm payrolls for August to increase by 67,000, but they expect the unemployment rate to remain unchanged at 9.1 percent.
U.S. Economy added 117,000 jobs in July, a more robust figure than most economists had predicted. The job growth was entirely in the private sector, with new 154,000 private sector jobs offsetting a decline of 37,000 government positions lost.
Furthermore, the unemployment rate, measured by a different survey than job growth, ticked down slightly to 9.1 percent, while most economists had expected it to hold level at 9.2 percent. The average workweek held relatively level at 34.3 hours, according to DOL statistics, while average hourly earnings ticked up 10 cents to $23.13.
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