Key US Data Releases and Events

Mixed signals on jobs. Markets were fooled on Thursday into thinking that the labor market was gathering steam when ADP reported a 201,000 increase in private payrolls and the number of first-time unemployment claims fell sharply. But in fact, job growth ultimately slowed to 96,000 in August—well below expectations—while the economy actually added 41,000 fewer jobs in June and July than initially reported. The unemployment rate fell two notches to 8.1%, but because of a decline in the labor force. This reinforces a few important points about the jobs market and data. First, ADP has been an unreliable indicator of official payroll numbers lately, typically overstating the pace of job creation. Second, a reduction in layoffs is welcome news, but doesn’t necessarily translate into a pickup in hiring. And finally, GDP growth in the 1.5–2.0% range—our current situation for the rest of the year—is simply not enough to generate a “favorable” drop in the unemployment rate.

Payrolls disappointment seals the deal for Fed action next week. Since Federal Reserve chairman Ben Bernanke identified the labor market as a "grave concern" in his recent Jackson Hole remarks, today's weak report should seal the deal for more easing from the Fed on September 13. We expect the Fed to extend its "low-rates" guidance through mid-2015, and to launch a QE3 program concentrated on mortgage-backed securities worth $500–600 billion. We also expect the Fed to downgrade its outlook for the economy in 2012–14, and it has been reported that the FOMC will extend its forecast into 2015. An open-ended securities purchase program is supported by a few Fed members, but is not likely at this point. But if the longer-term outlook deteriorated enough, the Fed could decide to tie monetary policy—balance sheet and forward guidance—to targets for unemployment and inflation. We do not think the measures on the table for next week’s meeting will be very effective in boosting growth, but for the Fed it is a question of trying to do what it can.

Inflation, Retail Sales, and Industrial Production on Tap. Besides the Fed meeting, markets will have plenty to chew on this coming week from the data calendar. Inflation readings, CPI and PPI for August will likely be stronger than we’ve seen in quite a while thanks to bursts in energy and gasoline prices. Core rates of inflation, however, should be much softer, continuing an ongoing trend. Despite the weak jobs picture, retail sales for August are seen advancing somewhat robustly. Some of this is due to higher gasoline prices, but chain-store sales results suggest gains in other key categories. Finally, industrial production likely sank in August as Hurricane Isaac cut oil, gas, and refinery output late in the month. Vehicle output was also down, and the rest of manufacturing was probably lackluster at best.

Tuesday, September 11 – Trade Balance (Jul.)

• IHS Global Insight: -$44.4 billion
• Consensus: -$44.2 billion
• Last Actual: -$42.9 billion (Jun.)

What to Look For

• A wider deficit, as exports decline while imports move sideways

Implications

The trade deficit likely widened by $1.5 billion in July, to -$44.4 billion, the first widening after three consecutive months of narrowing. Outside of aircraft, across-the-board declines in exports are expected. Imports were likely flat, with advances in capital and consumer goods offset by lower industrial supplies and autos.

Thursday, September 13 – Producer Price Index (Aug.)

Total

• IHS Global Insight: 1.2%
• Consensus: 1.0%
• Last Actual: 0.3% (Jul.)

Core

• IHS Global Insight: 0.0%
• Consensus: 0.2%
• Last Actual: 0.4% (Jul.)

What to Look For

• A spike in producer prices, led by sharp gains to gasoline prices

Implications

The Producer Price Index likely gained 1.2% in August, with energy prices spiking 5.3%. Food prices are seen rising 0.5%. The core PPI was likely flat, though, thanks to a drag from motor vehicle prices.

Thursday, September 13 – FOMC Meeting and Statement

• IHS Global Insight: 0.00–0.25%
• Consensus: 0.00–0.25%
• Last Actual: 0.00–0.25

What to Look For

• Downgraded forecasts; more monetary stimulus

Implications

Any lingering doubts that the Federal Reserve will ease again should evaporate with the disappointing jobs report. At the least, we expect the Fed to extend its guidance for an ultralow federal funds rate into 2015, from “late-2014.” We also now see a higher probability that the Fed will initiate a third round of quantitative easing. How far the Fed is willing to go will depend on members’ outlooks for the recovery, which they will likely downgrade and extend into 2015, from the current 2014 horizon.

Friday, September 14 – Consumer Price Index (Aug.)

Total

• IHS Global Insight: 0.7%
• Consensus: 0.5%
• Last Actual: 0.0% (Jul.)

Core

• IHS Global Insight: 0.2%
• Consensus: 0.2%
• Last Actual: 0.1% (Jul.)

What to Look For

• Rising gas prices push the CPI higher

Implications

The Consumer Price Index likely climbed 0.7% in August, with a nearly 10% rise in gasoline the major culprit, while food prices crept higher. Core CPI inflation was probably much softer at 0.2%, translating into 2.1% year on year—the same as July.

Friday, September 14 – Retail Sales (Aug.)

Total

• IHS Global Insight: 1.0%
• Consensus: 0.7%
• Last Actual: 0.8% (Jul.)

Less Autos

• IHS Global Insight: 1.0%
• Consensus: 0.6%
• Last Actual: 0.8% (Jul.)

What to Look For

• Another good month for the retail sector

Implications

Retail sales are expected to rise 1.0% in August. Higher gasoline prices boosted gas station sales. Strong chain-store sales suggest gains in key spending categories despite the depressed consumer mood. Back-to-school sales were likely boosted by several tax-free weekends during the month.

Friday, September 14 – Industrial Production (Aug.)

Industrial Production

• IHS Global Insight: -0.7%
• Consensus: 0.1%
• Last Actual: 0.6% (Jul.)

Capacity Utilization

• IHS Global Insight: 78.6%
• Consensus: 79.3%
• Last Actual: 79.3% (Jul.)

What to Look For

• A reversal of July’s gains, largely due to fallout from Hurricane Isaac

Implications

Industrial production is expected to have dropped 0.7% in August. Hurricane Isaac hammered oil and gas production in the closing days of the month, enough to cut mining output by 2.2%. Electricity, automobile, and truck production, meanwhile, all reversed July spikes. Refinery outages likely also cut another 0.1 percentage points off of manufacturing growth, turning an otherwise mediocre performance into a weak one.

Friday, September 14 – Reuters/University of Michigan Consumer Sentiment Index (Preliminary September)

• IHS Global Insight: 71.0
• Consensus: 74.0
• Last Actual: 74.3 (Final August)

What to Look For

• Deterioration in sentiment

Implications

The Reuters\University of Michigan Consumer Sentiment Index is expected to fall 3.3 points to 71.0 in the early-September reading. Rising gasoline prices, food inflation fears, and concerns about jobs are keeping consumers in a depressed state.

by Nigel Gault and Paul Edelstein