Key US Data Releases and Events

With economic growth slowing around the globe, major central banks appeared to divide into separate camps this week. On one side is the Chinese central bank, which delivered additional stimulus at its latest meeting. On the other side are European and US central banks, which are moving more cautiously.

The People’s Bank of China lowered its benchmark lending and deposit rates this week by 25 basis points—the first rate cut since 2008—to bolster its slowing growth. Meanwhile, the European Central Bank (ECB) held the overnight rate at 1%, even as it acknowledged increased downside risks. The Bank of England likewise kept interest rates unchanged this week, and resisted the temptation to initiate more quantitative easing. The Federal Reserve won’t meet until June 19, but in congressional testimony this week, Ben Bernanke offered no indications that further stimulus is at hand.

What explains the difference? Europe and the United States are at the end of a years-long monetary easing cycle. While there are elevated levels of risk, monetary policymakers now see little use in additional stimulus and are instead looking towards fiscal policymakers to pick up the ball. China, on the other hand, is coming off of a two-year tightening cycle, with ample room to ease. As such, we expect China’s central bank to ease further to complement a ramp-up in fiscal stimulus. We do not expect European and US policymakers to necessarily sit on their hands. Indeed, the ECB is almost certain to cut the overnight rate to 0.75% in July and the Fed is likely to extend Operation Twist as insurance against downside risks. But more drastic steps will be taken by these authorities only if the economic outlook deteriorates significantly.

In data news this past week (June 4–8), initial unemployment claims dropped by 12,000, offering some hope that the jobs market will not deteriorate any more this month. The ISM non-manufacturing index held steady, defying expectations that the pace of expansion might have slowed in May. The trade deficit narrowed in April as exports fell for the first time in five months, a casualty of slowing global demand. In non-data news, the Fed’s Beige Book for the April–May period provided anecdotal evidence that economic activity continued to grow modestly and that businesses remain guardedly optimistic, seemingly at odds with recent data. Congressional testimony on the economic outlook by Fed chairman Bernanke indicated that he was not jarred by the recent jobs report and that he still expects a moderate pace of growth to continue.

This coming week (June 11–14), CPI and PPI inflation likely turned negative in May due to declines in energy, while core inflation held steady. Retail sales were probably dented in May by softer auto and gas station sales, but probably held up in other key categories. Consumer attitudes on job prospects were likely damaged in early June, offsetting any benefit from lower gasoline prices.

Wednesday, June 13– Producer Price Index (May)

Total

• IHS Global Insight: -1.2%
• Consensus: -0.6%
• Last Actual: -0.2% (Apr.)

Core

• IHS Global Insight: 0.2%
• Consensus: 0.2%
• Last Actual: 0.2% (Apr.)

What to Look For

• A drag from energy and food; steady core inflation

Implications

Finished-goods producer prices likely eased under the weight of softer food and oil prices. Gasoline prices suffered most since they fell in a month when they typically rise. Core inflation should see a steady gain.

Wednesday, June 13 – Retail Sales (May)

Total

• IHS Global Insight: -0.4%
• Consensus: -0.2%
• Last Actual: 0.1% (Apr.)

Less Autos

• IHS Global Insight: -0.3%
• Consensus: 0.0%
• Last Actual: 0.1% (Apr.)

What to Look For

• Contraction in May retail sales centered on autos and gas stations

Implications

Retail sales likely contracted in May for the first time since May 2011. Light-vehicle unit sales fell and gasoline stations are expected to have taken a hit from falling prices. Other retail sales categories should remain above water, but exhibit weaker growth than in the first three months of the year.

Thursday, June 14 – Consumer Price Index (May)

Total

• IHS Global Insight: -0.3%
• Consensus: -0.2%
• Last Actual: 0.0% (Apr.)

Core

• IHS Global Insight: 0.2%
• Consensus: 0.2%
• Last Actual: 0.2% (Apr.)

What to Look For

• A decline in the headline index due to gasoline-price seasonality; a steady increase in the core reading

Implications

Consumer prices were likely dragged down by falling gasoline prices, while core (nonfood, nonenergy) prices firmed 0.2%. Gasoline prices normally peak around the end of May, but this year gas prices began falling in April and posted losses for eight consecutive weeks.

Friday, June 15 – Industrial Production (May)

Industrial Production

• IHS Global Insight: -0.1%
• Consensus: 0.1%
• Last Actual: 1.1% (Apr.)

Capacity Utilization

• IHS Global Insight: 79.1%
• Consensus: 79.2%
• Last Actual: 79.2% (Apr.)

What to Look For

• Weaker auto production after an April boom

Implications

Total industrial production likely faded in May as motor vehicle production slipped from an ultra-strong April. It was probably not a great month for manufacturing, as total production-worker hours fell 0.4%, although part of that was likely offset by higher productivity. Electricity output probably surged following a return to more normal weather, but natural gas utilities’ output probably fell.

Friday, June 15– Reuters/University of Michigan Consumer Sentiment Index (Preliminary June)

• IHS Global Insight: 77.0
• Consensus: 77.5
• Last Actual: 79.3 (May)

What to Look For

• Some deterioration in attitudes about jobs prospects

Implications

The Reuters/University of Michigan’s consumer sentiment index should decline 2.3 points to 77.0 in June. The fall in gasoline prices was probably not enough to offset the considerable deterioration in attitudes about job prospects stemming from the disappointing May employment report.

by Nigel Gault and Paul Edelstein