Busy Week Ahead, Global Insight Says

Sun. August 24, 2008; Posted: 10:08 PM

(RTTNews) - The key economic report will be the Personal Income and Outlays release on Friday, which should show a July drop in real personal income and consumption, a jump in prices, and another unsettling core inflation reading, according to the analysts at Global Insight. Upwardly revised second quarter GDP estimates on Thursday should show that the economy grew 2.7 percent in the second quarter, despite job losses, with net exports accounting for all of the growth. Existing home sales on Monday should show a small increase in July sales and new home sales on Tuesday a small drop. These numbers, however, are of historical interest. The housing outlook has worsened recently because of deteriorating credit markets. We expect new and existing home sales to continue to fall for the rest of this year. Finally, we are expecting no change in durable goods orders. Domestic demand is weak; exports and import substitution represent the strength in this market. Export momentum may fade in coming months given the weak performance of the European and Japanese economies.

Existing home sales have hardly budged in eight months. Over this period, the pending home sales index (PHSI | Quote | Chart | News | PowerRating) has also been trendless, although it did bounce back in June. The May and June PHSI readings point to small increases in existing home sales during July and August. Afterward, we expect sales to slide because of deteriorating credit markets. The housing outlook has worsened recently. Credit is getting tighter for both builders and homeowners. Existing home sales have stabilized because plummeting prices of foreclosed homes have spurred sales. New home sales have continued to drop, however, because builders cannot slash prices as ruthlessly as banks have on foreclosed homes. Export orders have been driving the bus for durable goods industries for an extended period of time, but reports of a tightening in credit conditions in overseas markets could be a signal that tailwinds from export sources are likely to become much less forceful.

The revision will emphasize the extent to which second-quarter growth was supported by foreign trade. Domestic demand growth was negative in the advance release and should remain so in the revision. We do not think that trade will be able to prevent a slowdown in growth in the second half of the year. We expect slower growth in the third quarter (around 1.5 percent) and an outright decline of 0.7 percent in GDP in the fourth quarter as the fiscal stimulus effect fades and consumer spending weakens.

We are expecting the stimulus rebates to add about $6.0 billion (which annualizes to $72 billion) to transfer payments in July, down from June's contribution of $12.5 billion ($150 billion annualized). Private wage and salary disbursements will be flat, but possibly negative. Overall, for July, we are expecting a 0.5 percent drop in personal income.

On a year-on-year basis, look for core PCE to rise 2.4 percent, a tick faster than the 2.3 percent rate recorded in the previous month. The steady drift above the top of the Federal Reserve's presumed 1.5 to 2 percent target band will make it harder for the Fed to downplay inflation risks as we move through the second half of the year. Nevertheless, dismal growth prospects should keep the federal funds rate at 2.0 percent into the first half of 2009. Consumer spending fell in inflation-adjusted terms in June, and will probably fall again in July. For the third quarter overall, we expect a small inflation-adjusted increase in spending of about 0.5 percent. But there is a growing risk that the third quarter will see the first outright decline in consumer spending since the end of 1991. Consumer attitudes are getting a lift from falling gasoline prices. We expect that the Conference Board's consumer confidence index will edge up to 53.0 in August from 51.9 in July, while the University of Michigan's consumer sentiment index rises to 62.2 from 61.2. Yet, both of these readings will remain in a recessionary range, held down by concerns over rising unemployment, declining real wages, falling home prices, and tightening credit conditions.

More News: Market Updates | Stock Alerts | All Trading News | Stock Index

Archives

Feedback

Email Article Link

Close X

RELATED SITES

Please call 1-213-955-5858 ext. 1

Tax Relief Bank Levy Wage Garnishment

Disclaimer:

The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.

It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

The Connors Group, Inc.
15260 Ventura Blvd., Ste. 2200
Sherman Oaks, CA 91403

All analyst commentary provided on TradingMarkets.com is provided for educational purposes only. The analysts and employees or affiliates of TradingMarkets.com may hold positions in the stocks or industries discussed here. This information is NOT a recommendation or solicitation to buy or sell any securities. Your use of this and all information contained on TradingMarkets.com is governed by the Terms and Conditions of Use. Please click the link to view those terms. Follow this link to read our Editorial Policy.