Economic winds blew more fairly in the past week, with positive signals from the housing and labor markets, plus other indications from retail sales and inventories that overall real GDP will decline by a relatively shallow 1.4% in the second quarter.

Moreover, much steeper declines in hours worked during the second quarter point in the direction of very strong productivity gains, which are providing a lift to overall corporate earnings. The manufacturing sector is moving closer to the break-even point, and the economy is poised to pull out of the recession in the third quarter.

Next week, the Conference Board's leading indicator will capture these more positive economic winds, with a strong gain of 0.9% expected for June, following increases of 1.2% in May and 1.1% in April. Thus, June will report the third month of near-1% advances in the leading indicator—these gains are becoming pronounced, persistent, and pervasive, supporting the thesis that the economy will pull out of the recession fairly soon.

Other indicators will be mixed, June existing home sales are expected to slip, but consumer confidence in the second half of July will get a lift from relief on gasoline prices and positive momentum in equity prices.

Earnings season kicks in full blast next week. Second-quarter reports have so far tracked above expectations, mainly due to tight cost controls and strong productivity gains. There is a good chance that this trend will continue in earnings reports released next week.

KEY U.S. DATA RELEASES THIS WEEK

Monday, July 20 – Conference Board Leading Indicator (Jun.)

• IHS Global Insight: +0.9%
• Consensus: +0.5%
• Last Actual: +1.2% (May)

What to Look For

• Leading index is expected to jump by 0.9%.

Implications

The Conference Board's Leading Economic Index is expected to rise 0.9% in June. The strong gain should be broadly based, since nearly all of the index's 10 components are likely to improve from May. A further steepening of the yield curve is providing the biggest boost to the forward-looking measure, with significant contributions also coming from a surge in housing permits and rising stock prices. A slight slip in the University of Michigan's Index of Consumer Sentiment will subtract a negligible amount from the headline reading.

Thursday, July 23 – Existing Home Sales (Jun.)

• IHS Global Insight: 4.72 Mil.
• Consensus: 4.80 Mil.
• Last Actual: 4.77 Mil. (May)

What to Look For

• Sales expected to ease about 1.0%.

Implications

Offsetting forces continue to drive existing home sales. Driving sales up are distressed sales (foreclosures and short sales), and to a lesser extent, improved affordability; driving sales down is weak demand. Distressed sales and improved affordability won the tug of war in April and May. But over the past seven months, the battle has been a stalemate, as sales have hardly changed. For June, we project a small decline in sales. Going forward, we expect sales to slide further as the unemployment rate rises.

Friday, July 24 – Michigan Consumer Sentiment Index (Final Jul.)

• IHS Global Insight: 66.0
• Consensus: 65.0
• Last Actual: 64.6 (Preliminary July)

What to Look For

• The Reuters/University of Michigan Consumer Sentiment Index is projected to average 66.0 in July, up from a preliminary reading of 64.6, but below its June value of 70.8.

Implications

The upturn in sentiment during mid-to-late July flows from the recent downward correction in gasoline prices and upward momentum in the stock market. Despite some modest improvement since February, sentiment is stuck in a recessionary range. Rising unemployment, depleted asset values, and tight credit conditions are discouraging discretionary spending. After a sharp decline in late 2008, real consumer spending has stabilized, but a sustained recovery has not yet begun.