Thoughts about Upcoming Economic Indicators ...

Although this week's economic indicators are likely to take a backseat to the Jackson Hole meeting, we thought it might be helpful to provide our thoughts regarding some of the data.

 

A second estimate of the Q2 annualized real GDP growth will be provided tomorrow morning.  We continue to estimate that figure at 1.6%, as we did before the first official GDP estimate was released.  It appears that some economists are now feeling the same as the latest consensus is 1.6%, an increase of 10bps from the first estimate.  If we see something above 1.8%, expect the market to rally as it could be hinting a possible 2%+ growth in the second half, which may be viewed as good enough by the market even without a QE.  We stand by our first estimate of 1.6%.

 

July pending home sales is expected to be unchanged from the prior month.  There may be a surprise to the upside as even though the pent-up demand for a slow March - April period was evident in May and June, the summer remains a seasonally positive period for home sales.  We will likely see a slight m/m increase in pending home sales.

 

We do not foresee any big surprises in the Fed's Beige book, which is to be released tomorrow at 2pm (ET).  However, the report will be weighted heavily by the market as it may provide some color regarding if, where and when the Fed will announce the QE for which the entire market is yearning.

 

Thursday's initial jobless claims could turn out to be a slightly positive surprise, which may decrease chances of a QE and lower the market.  The seasonal factor to be applied is slightly higher than last year, which basically pushes the seasonally adjusted figure further down.  In addition, given the continuing uncertainty regarding the US and global economies, some late hiring (mostly temporary positions) may have also helped lower initial claims.  However, we do not expect initial claims to come in significantly below the 370K consensus.  In short, we expect something within the 350K - 360K range.  By the way, as usual, the prior week's initial jobless claims will likely be revised higher.

 

We will also see the personal income, spending and PCE data for the month of July.  We don't expect much of a surprise.  If we see a combination of lower savings and higher spending, expect a slowdown in consumption even during the seasonally better September month.  August was not a bad month.  However, we believe consumption has been negatively impacted by higher gasoline prices, which will likely result in a cut back in spending by consumers in September until the Christmas shopping season begins.  July PCE will likely show that inflation is under control, which is positive for a QE.   However, as a reminder, this data is for July.  We believe higher food and energy costs have had an impact in August and will impact the September headline PCE and CPI significantly.

 

This week will end with the release of the Chicago PMI survey and the University of Michigan's consumer sentiment survey.  We do not expect much of a surprise in any of these two indicators; and if there are any surprises, the market reaction will be subdued as the wait for Jackson Hole and FOMC continues.