Tuesday, July 16, 2013

Consumer shopping patterns, Fed in focusMonday,

The U.S. has been expanding at a mediocre pace in 2013 even though hiring has picked up and consumers are more confident. Now the big question is whether those trends will translate into faster household spending that shifts the economy into a higher gear.
Investors will get a close look at consumer-spending patterns this week with the release of retail sales for June. Other notable reports are likely to show further improvement in the U.S. housing market, but an ongoing struggle by U.S. manufacturers to smash out of a slow-growth rut.
The upshot is a mixed picture in which some parts of the economy are improving and others lag behind — with little hint that overall growth will accelerate fast enough to meet the rosier forecasts of the Federal Reserve.
The central bank expects to start to ease the throttle on its bond-buying stimulus program before the end of the year if its economic targets are met. Yet many economists still harbor doubts about the pace of progress. Most believe the U.S. will expand at a 2% clip or less this year vs. the central bank's target range of 2.3% to 2.6%.
"The Fed has overestimated growth the past few years and has had to mark its forecasts down," Sam Bullard of Wells Fargo pointed out. "We are healing. Things are getting better. But there are still excesses to be worked off."
What's the deal with retail
The month of June was almost certainly a good one for retailers, especially auto dealers. Economists polled by MarketWatch project a nearly 1% increase last month — the second biggest gain of the year.
Yet the details of the report probably won't look as glossy. A sizable part of the gain could reflect higher spending at gasoline stations owing to a rise in fuel prices over the past few months. That's usually a drag on the economy.
Car dealers, on the other hand, posted strong sales in June and higher demand for vehicles is clearly a sign of an improving economy. People don't buy new cars unless they've got job security and money to spend.
"We saw some pretty strong auto numbers lately," said Michael Gapen, chief U.S. economist at Barclays Capital.
An increase of about 0.3% in retail sales minus gas would be viewed as a solid if unspectacular gain. A higher number could give stocks a boost and perhaps lend credence to the Fed's expectations. Consumer spending accounts for more than two-thirds of the U.S. economy and retail sales is a key component.
View from the Fed
Also Monday, the New York Federal Reserve will issue the Empire State index on manufacturing conditions in the region. A similar report, produced by the Philadelphia Fed, will come out Thursday.
Both Fed reports are likely to show manufacturers are still growing their business, but perhaps at a touch slower pace in July compared to June. Weak conditions around the world, notably a recent slowdown in China, have curbed U.S. manufacturing exports and kept a lid on growth.
"We don't think manufacturing is all of sudden going to be big driver of growth," Bullard said.
At midweek, Federal Reserve Chairman Ben Bernanke makes the first of two appearances before Congress to explain the central bank's strategy to help the U.S. economy. He'll testify in the House on Wednesday and the Senate on Thursday.
Sometime later this year the Fed is expected to scale back its monthly purchases of $85 billion in bonds, a tactic meant to keep interest rates low. Democrats might press the chairman to maintain the purchases for a longer period while Republicans could urge him to terminate the Fed's strategy even sooner.
On the same day Bernanke begins the first leg of his congressional trek, the Commerce Department will issue the latest figures on new home construction. Housing starts are forecast to climb to 954,000 annual rate in June from 914,000 in May.
The housing market has suddenly become one of the main pegs holding up the U.S. economy after years of malaise following the collapse of a bubble. Sales and prices have surged over the past year, helped by low interest rates.
Even the recent uptick in mortgage rates is unlikely to slow the market down, economists say.
"Mortgage rates have backed up and affordability has worsened, but affordability still remains relatively high compared to pre-crisis levels," Gapen said.
Source: MarketWatch

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