Key U.S. Data Releases and Events

The key release this week will be Friday's gross domestic product (GDP), second-quarter 2009 (advance) estimates. In addition to a detailed first look at how the economy fared during the second quarter (we project a 1.1% drop in real GDP), the release will include comprehensive revisions. The BEA publishes comprehensive revisions every five years, adding and deleting concepts, introducing new methodologies, revising data sometimes as far back as 1929, and, in this release, changing the reference year from 2000 to 2005. The revisions will likely show that real GDP dropped more in 2008 than current data show, possibly making this recession the deepest since the 1930s.

The other key releases include what should be another positive housing report, with new home sales (July 27) jumping 8% in June. June orders for durable goods (July 29) will be dragged down by aircraft cancellations and a drop in defense orders from unusually high levels in May. July's consumer confidence reading (July 28) is expected to be down because of worries about job and income prospects. Finally, the employment cost index (July 31) may show the weakest percentage gains in the history of the statistic.

KEY U.S. DATA RELEASES THIS WEEK

Monday, July 27 – New Home Sales (Jun.)

• IHS Global Insight: 0.370 Mil.
• Consensus: 0.355 Mil.
• Last Actual: 0.342 Mil. (May)

What to Look For

• A solid increase in sales.
• The number of unsold homes dropping for the 26th month in a row.

Implications

The market for new homes probably hit bottom in January. Going forward, the recovery will be a slow one and sales will remain below normal (i.e., under 950,000) for at least two more years.

Tuesday, July 28 – Conference Board Consumer Confidence (Jul.)

• IHS Global Insight: 47.0
• Consensus: 49.0
• Last Actual: 49.3 (Jun.)

What to Look For

• The Conference Board's Consumer Confidence Index is expected to edge lower to 47.0 in July.
• We expect the lift from a rising stock market and falling gasoline prices to be offset by increased worries about job and income prospects.

Implications

Consumers remain on the sidelines, hesitant to spend, eager to save. We expect real consumer spending to grow at a 1–2% rate in the second half, led by a pickup in auto sales.

Wednesday, July 29 – Durable Goods Orders (Jun.)

• IHS Global Insight: -1.7%
• Consensus: -0.5%
• Last Actual: 1.8% (May)

What to Look For

• Durable goods are expected to fall 1.7% in June.
• Automakers were shut down either by bankruptcy proceedings or to cleanse dealer inventories, aircraft order cancellations exceeded incoming new orders, and May defense orders were unusually high. Core orders for capital goods should improve from depressed levels, but not enough to outweigh these three negative factors.

Implications

Real spending on equipment and software will not bounce back until the fourth quarter.

Friday, July 31 – Real Gross Domestic Product, Advance (Q2)

• IHS Global Insight: -1.1%
• Consensus: -1.5%
• Last Actual: -5.5% (Final, Q1)

What to Look For

• We expect real GDP to decline 1.1% in the second quarter, a much shallower drop than the 5.5% plunge in the first quarter.
• Final domestic spending (i.e., domestic spending excluding inventories) should drop 1.3%, compared with a 5.4% fall in the first quarter.
• Business fixed investment and residential fixed investment should both drop less steeply than in the first quarter, while federal defense spending should bounce up after a decline.
• Consumer spending will probably decline slightly (down 0.5%) after a first-quarter increase.
• Inventories should decline very sharply again, deducting 1.7 percentage points from the GDP growth rate, but that will be counterbalanced by a 1.9-percentage-point boost from foreign trade.
• The GDP report is expected to show no inflation pressures, with the GDP price index virtually unchanged.

Implications

There is more uncertainty than usual over this GDP release, because it will include a comprehensive revision of the national accounts, and all previous quarters will be subject to change. We think it more likely that recent GDP history will be revised down rather than up. Incomes have been doing worse than GDP, and some of the gap may be removed through lower GDP estimates.

This second-quarter report should set the stage for growth in the second half of the year when spending should stabilize and inventories decline less steeply.

Friday, July 31 – Employment Cost Index (Q2)

• IHS Global Insight: 0.2%
• Consensus: 0.3%
• Last Actual: 0.3% (Q1)

What to Look For

• The index increased only 0.2% during the quarter.

Implications

Many of the indices in the report will post their weakest gains ever. The labor market is extremely weak. Wage inflation is not a problem. However, the risks of deflation are receding.