The week's highlight was an uptick in retail sales in May, aided by tax rebate checks. The good news tempered the negative fallout from last week's weak jobs report. Employment has now fallen for five straight months. And as The Conference Board's new Employment Trends Index suggests, jobs will continue to decline through the summer and possibly right through the autumn months.

It would follow that retail buying (excluding groceries and gas) isn't likely to keep delivering pleasant surprises. Business investment also shows no sign of any quick turnaround. The bottom line to this story is that weak growth (no more than a 1 percent annualized increase in GDP) is likely to remain in place for much if not all of the second half of 2008. As the saying goes, "wait till next year."

Tuesday, June 17, 2008

8:30am Housing Starts and Building Permits (Bureau of the Census)

Home building fell below 1 million units in February and March (annualized) but didn't continue to fall in April. In May, it could be back to 1 million units. Yes, it would still be at a two-decade low, but it may finally (two years into the decline) be bottoming out.

8:30am Producer Price Indexes (Bureau of Labor Statistics)

The inflation problem has been centered on the pressure from relatively expensive labor. But material costs (especially for metals and chemicals) were edging higher in April, with an increase in the 0.3-to-0.4 percent ("core" which excludes food & energy) range. That probably continued in May, and will continue at this pace perhaps right through the summer. The overall number will be higher solely due to the rise in energy prices.

9:15am Industrial Production and Capacity Utilization (Federal Reserve Board)

Demand is soft and business (especially at the wholesale level) wants to reduce inventory (and carrying charges). Therefore, industrial production very likely continued to edge lower in May. Auto, furniture and appliances, and some high-tech, are all cutting back — with no increases elsewhere to offset the declines.

Thursday, June 19, 2008

10:00am Composite Indexes of Leading, Coincident and Lagging Indicators (The Conference Board)

The Leading Economic Index was soft throughout 2007 and continued into the early months of 2008. The Coincident Economic Index, which tells us where we are right now, has been essentially flat in the past two months. What change if any was there in May?

Everything changes, nothing stays the same. Energy prices have been rising for more than two years, trimming growth potential and unleashing long-dormant inflationary pressures. And now there is fresh evidence of a spill-over effect. That is, there is some spill-over effect in other prices because: 1) Transportation costs are up; and 2) Transformation (not just manufacturing) costs are up.

Everything in economics always has the potential to cut both ways. Energy producers (in Wyoming or in the Mid-east) benefit from higher prices. Energy-dependent states are aware that any price that can go up, can go down, and energy supplies do not last forever. That's why they focus on diversifying their economies.