MARKET TRENDS: Summary for the Week Beginning July 13, 2015

The week ahead will have a number of economic indicators, including a retail sales report for June on Tuesday, which is being driven by higher auto sales. The Producer Price Index is scheduled to be released Wednesday. On the same day, the Federal Reserve releases data for June’s industrial output, which is expected to have risen 0.2% after falling 0.2% in May. The week ends with data on the Consumer Price Index, a gauge of Inflation from the U.S. Labor Department, and the University of Michigan’s Consumer Sentiment Index.

Retail Sales and Core Retail Sales (Tues): U.S. Retail Sales are expected to have climbed in June for a fourth straight month, boosted by job gains and stable prices. Retail Sales are expected to have risen 0.3%, while Core Sales are projected to have advanced 0.5% in June.

Consumer spending in the U.S. was better in May, with higher purchases of automobiles, clothing and building materials. Retail sales rose by a solid 1.2%, in line with market expectations, after a modest 0.2% gain in April. A strong labor market continues to improve store sales.

Over the past year, the sales increased 2.7%. Core Retail sales, which exclude automobiles, rose 1% in May against market expectations of 0.7%.

Business Inventories (Tues): Business Inventories, a measure of the changes in the worth of unsold goods held by manufacturers, wholesalers, and retailers, is expected to have grown 0.3% in May following a 0.4% rise in the previous month. The rise in overall inventory is driven by the wholesale stockpiles. A recent government release stated that U.S. wholesale inventories grew by 0.8%, the largest amount in the last six months in May, while growth in sales slowed. The solid increase in May inventories indicates that businesses are growing and sellers are more confident about the economic strength going forward.

NY Empire State Manufacturing Index (Wed): The N.Y. Empire State Manufacturing Index is expected to shoot up to 3.5 in July, indicating improving business conditions for U.S. manufacturers. Earlier last month, the Index slipped into the negative territory of 1.98, led by a fall in new orders and shipments. The New Orders Index fell six points to -2.1, and the Shipments Index edged down to 12.0.

Labor market indicators also pointed to a modest increase in employment levels and the average work-week. The Price Paid Index at 9.6 points was near last month’s multi-year low, while the Prices Received Index held steady at 1.0, indicating flat selling prices for a second consecutive month.

Producer Price Index (PPI) and Core PPI (Wed): Producer Prices are expected to rise 0.2% month-over-month (MoM) in June. The Producer Price Index moved up 0.5% in May, breaking out from the negative territory of 0.4% in April. The Index is expected to rise to 0.4%. Headline inflation fell 1.1% year-over-year. May’s rise in producer prices came from an increase in energy prices.

Industrial Production (Wed): Industrial production in the U.S. likely increased 0.2% MoM in June, reversing a fall of 0.2% in the previous month, driven by an increase in utility output. Favorable weather conditions helped boost Utility demand during the month. However, manufacturing production should be modest, hurt by a stronger dollar, which limits exports, and lower business spending in the energy sector due to lower oil prices.

Philadelphia Fed Manufacturing Index (Thurs): The Philadelphia Federal Manufacturing Index is expected to come at 12.1 in July. Manufacturing conditions in the Philadelphia region have improved since the last month, when the Philadelphia Federal Manufacturing Index shot up from 6.7 in May to 15.2 in June. That was far beyond market expectations of a modest rise to 8.1.

The increase was primarily driven by New Orders which jumped to 15.2 in June, up from 4.0 in May. The Prices Index surged to 17.2 from a negative of 14.2 in May, while the employment index fell to 3.8 from 6.7. The reading reflects higher growth in the second half of 2015.

Building Permits (Fri): U.S. building permits for home construction likely rose to a seasonally-adjusted 1.15mn in June. Building permits of 1.25mn in May were up 11.8% MoM – the highest in nearly eight-years.

This indicates an uptrend in the housing sector leading to an improvement in the broader economy. The Fed policymakers had been considering the housing sector as one of the weak spots in the U.S. economy.

Consumer Price Index and Core Consumer Price Index (Fri): U.S. inflation data is expected on Friday. Consumer prices likely grew at a slower pace in June than in May.

The consumer prices are expected to have gained 0.3% MoM in June following a 0.4% rise in May, the largest gain in more than two years on the back of increasing gasoline prices. The solid rise in May prices indicates the dissipating first quarter impact.

Meanwhile, the core Consumer Price Index, which excludes food and energy costs, is likely to have inched up 0.2% in June after a 0.1% increase in May, the smallest gain in five months. In April, Core Consumer Prices were up 0.3%. Reckoned on a yearly basis, the core CPI rose 1.8%, compared to a 1.7% rise in May.

Housing Starts (Fri): The Commerce Department is scheduled to release the Housing Starts report on Friday. The U.S. housing starts are likely to have expanded in June after declining in May, and are expected to have jumped to 1.114mn in June.

Michigan Consumer Sentiment (Fri): Solid job market data triggered U.S. consumer confidence. Consumer confidence jumped to 96.1 during the final read in June.

The rise in confidence, coupled with an increase in wages, drove up consumer spending. Consumer confidence is expected to reach 96.7 in July. Such high confidence and spending bodes well for retail sales numbers.

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