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Key U.S. Data Releases and Events15 Aug 08Next week's reports should add further evidence of a weak third quarter for the U.S. economy. Housing starts and permits are expected to drop sharply in July, and residential construction will likely again be a large drag on real GDP growth. Last week's economic reports point to very weak GDP growth in the third quarter—with a distinct risk of the first quarterly decline in real consumer spending since 1991. Real consumption likely declined sharply in July, and the mounting evidence of significant slowdowns—if not outright contractions—in Europe and Japan point toward a deceleration in export growth further down the pipeline. The declines in employment also appear to be accelerating. The silver lining to this is that the commodity bubble appears to have burst, which will potentially boost the outlook for 2009. In the short term, however, the economy remains extremely fragile and borrowing spreads have widened. Next week's reports will add further evidence of a weak third quarter. Housing starts and permits are expected to drop sharply in July, and residential construction will likely again be a large drag on growth. While top-level and core producer prices should have moved up fairly sharply in July, that will probably be the last gasp for commodity price cost-push inflation during 2008. Much better price reports are expected in August, with the stage therefore set for the Federal Reserve to edge closer to a neutral policy position at the upcoming FOMC meeting on September 16. KEY U.S. DATA RELEASES THIS WEEK Tuesday, August 19 – Producer Price Index (Jul.) Total Core What to Look For
Implications We expect producer prices to have climbed 0.7% in July. The recent plunge in gasoline prices came too late to be reflected in July's PPI, and when sharp increases in natural gas prices are added in, there will be enough lift in energy prices to add 0.4 percentage point to the top-line increase. Food prices will continue to apply upward pressure as well. Excluding food and energy, we expect "core" producer prices to rise 0.3%, passing on some of the pre-July cumulative hikes in energy and commodity costs. Wednesday, August 20 – Housing Starts and Building Permits (Jul.) Starts Permits What to Look For
Implications Housing starts and permits will both drop to 17-year lows in July because of a change in New York City's building codes that went into effect July 1. Because multi-unit housing starts and permits in the Northeast soared during June in advance of the change, we anticipate a big payback during July. We are also expecting another decline in single-family permits and starts; the supply of housing continues to be cut in response to still relatively high inventories of unsold homes. This will continue to generate a large negative drag on overall growth in the second half of 2008. by Brian Bethune and Nigel Gault
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