Generally, the economic tea leaves next week will point to a pending mid-cycle slowdown in growth, as retail sales and industrial production are expected to have retrenched a bit in June. On the plus side, the recent sharp drops in crude oil and other food and commodity prices will be evident in the June declines of both the producer and consumer price indexes. Consumer sentiment is expected to pull back a little in the first half of July.

Corporate earnings reports will start to dominate the news for the second quarter, and earnings momentum overall should remain solid, especially the year-over-year comparisons. There are also some signals that the loan charge-offs in the banking sector may be close to cresting. That rite of passage for the banking sector, when it comes, will be a watershed for the current cyclical recovery.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, July 13 – Trade Balance (May)

• IHS Global Insight: -$37.1 Billion
• Consensus: -$39.0 Billion
• Last Actual: -$40.3 Billion (Apr.)

What to Look For

• Trade deficit is expected to narrow to $37.1 billion in May.

Implications

The decline is mainly due to sharply lower petroleum imports in both price and volume, both of which can be highly volatile. We expect both export and non-oil import volumes to bounce higher after declines in April. The underlying position is that both export and import growth are slowing after a very strong rebound that began in mid-2009, but exports are slowing more than imports, leaving trade as a net drag on GDP growth right now. We expect trade to subtract 0.9 percentage point from second-quarter growth.

Wednesday, July 14 – Retail Sales (Jun.)

Total

• IHS Global Insight: -0.8%
• Consensus: -0.3%
• Last Actual: -1.2% (May)

Less Autos

• IHS Global Insight: -0.5%
• Consensus: 0.0%
• Last Actual: -1.1% (May)

What to Look For

• We expect another decline in retail sales during June, this time of 0.8%.

Implications

Lower vehicle sales are partly responsible; excluding autos, we expect a 0.5% decline. Sales at building materials stores are likely to fall again as the energy-efficient appliance incentives wind down, while gasoline station sales should retreat on lower gasoline prices. In other outlets, sales probably edged higher based on the tepid readings from chain stores. We expect sales to pick up again in the third quarter, but consumer spending has lost momentum after three strong months from February through April.

Thursday, July 15 – Producer Price Index (Jun.)

Total

• IHS Global Insight: -0.3%
• Consensus: -0.1%
• Last Actual: -0.3% (May)

Core

• IHS Global Insight: 0.2%
• Consensus: 0.1%
• Last Actual: 0.2% (May)

What to Look For

• The headline PPI likely fell 0.3%.
• Excluding food and energy, core producer prices probably rose 0.2%.

Implications

Producer prices appear poised for a June retreat, as both food and energy prices tumbled last month. Falling prices for fruits, vegetables, and meats should drag the index for food roughly 0.3% lower. On the energy front, gasoline, diesel, and fuel oil are all set to ease back in June. Excluding food and energy, core producer prices likely rose 0.2%. Durable goods prices should continue their recent gains, as businesses invest their cash in capital equipment and software. Recent steep declines in commodity prices should begin to move through the pipeline, with crude and intermediate materials prices declining.

Thursday, July 15 – Industrial Production (Jun.)

• IHS Global Insight: -0.1%
• Consensus: -0.1%
• Last Actual: 1.3% (May)

What to Look For

• Industrial production is estimated to have edged down by 0.1%

Implications

Vehicle production is expected to be a drag in June, where it had been a big plus in May; electricity production likely up, but less so than May. May was strong for most of manufacturing, but June was much weaker. Production worker hours fell 1.0% in the June employment report, although we have dampened the resulting hit to manufacturing output because other measures of manufacturing like the ISM were not as bad as the hours data. The June pause should only be temporary, as July has all the markers of a booming month—a 100-degree heat wave and some cancelled model-year-changeover shutdowns in autos, plus a return to decent growth in core manufacturing more in line with recent trends.

Friday, July 16 – Consumer Price Index (Jun.)

Total

• IHS Global Insight: -0.1%
• Consensus: -0.1%
• Last Actual: -0.2% (May)

Core

• IHS Global Insight: 0.1%
• Consensus: 0.1%
• Last Actual: 0.1% (May)

What to Look For

• Top-level consumer prices should edge lower, by 0.1%.
• Core prices are expected to creep up 0.1%.

Implications

Consumer prices will probably edge lower for a third straight month, dropping 0.1% in June. The key driver should be a roughly 4% decline in seasonally adjusted gasoline prices, more than offsetting modest increases in food and other prices. Excluding food and energy, core consumer prices should inch 0.1% higher. We remain in an environment of stagnant prices, as consumer demand remains under the thumb of a dismal labor market.

Friday, July 16 – Michigan Consumer Sentiment Index (Preliminary Jul.)

• IHS Global Insight: 75.0
• Consensus: 74.0
• Last Actual: 76.0 (Final Jun.)

What to Look For

• Sentiment is expected to have retreated slightly in the first two weeks of July.

Implications

We expect the Reuters/University of Michigan's Index of Consumer Sentiment for early July to ease to 75.0, down slightly from 76.0 in June, due to increased uncertainty in the equity markets and concern about the labor market.