Global Business Confidence

Global business confidence weakened only a bit last week, but given the dizzying turmoil in financial markets, this is encouraging. However, it is premature to conclude that recent events won't ultimately do significant damage to business sentiment and the economy. Most worrisome is the sharp decline in responses regarding hiring intentions. Expectations regarding the outlook through the end of the year have also deteriorated meaningfully. Most encouraging is that sales remain sturdy and the availability of credit has not been impaired by the financial tumult. Confidence is now consistent with a global economy that is barely expanding at its potential.

Treasury Budget: -$129.4 bil
The unified budget deficit for July was $129 billion. Through the first 10 months of fiscal 2011, the deficit was down 6% from last year. The budget deficit will decline slightly in 2011; while the recovery is boosting personal and corporate income tax revenues, the Social Security payroll tax cut is reducing other revenues.

Treasury International Capital Flows:- $3.7 bil
Net long-term capital flows to the U.S. fell to $3.7 billion in June from $24.2 billion in the prior month. This is mainly driven by private foreign investors who sharply lowered their holdings of U.S. Treasury bonds and notes as well as corporate bonds. In contrast, foreign official institutions increased their holdings of U.S. long-term debt but reduced their holdings of government agency bonds, including those issued by Fannie Mae and Freddie Mac. Interestingly, U.S. residents increased their holdings of foreign bonds in June after several months of unloading these assets.

International Trade (FT900): -$53.1 bil
The U.S. trade balance widened from -$50.8 billion to -$53.1 billion in June, with imports falling 0.8% and exports off a larger 2.3%. The real goods balance for the month widened from -$47.9 billion to -$50.9 billion. The real deficit was larger than what the government assumed in the first estimate of GDP, and second quarter growth is now tracking below 1%. Exports have now fallen in back-to-back months for the first time since the recovery began.

Import and Export Prices: 0.3%
U.S. import prices rose more than anticipated in July, increasing 0.3%. This follows a downwardly revised 0.6% decline in June (previously -0.5%). Imported petroleum prices rose 0.6%, reversing a small fraction of June's 2.2% decline. Excluding petroleum, import prices rose 0.2% between June and July. Nonfuel import prices also rose 0.2% in July and were up 5.5% on a year-ago basis. The sluggish U.S. economy will take the edge off inflation, but July import prices suggest that it may be more gradual than we first expected.
 

Conference Board Leading Indicators: 0.5%
The Conference Board index of leading indicators rose 0.5% in July. This increase was above expectations. The coincident index was 0.3% higher. The increase in the leading index is consistent with our expectations for a continued recovery in the second half of 2011.

Consumer Price Index: 0.5%
Thwarting expectations of a modest increase, headline consumer prices soared 0.5% in July, more than reversing the previous month's decline. A sharp rebound in the energy index and further escalation in food price inflation accounted for the July jump. Core inflation moderated from the elevated readings of the two previous months, however, suggesting increases in food and fuel prices have already filtered through.

 Bloomberg Consumer Comfort Index: -49.1
Consumer sentiment extended its recent slide, dropping back near its mid-May low. According to the Bloomberg consumer confidence index, sentiment dropped 1.5 points, to -49.1 for the week ended August 7.

Producer Price Index: 0.2%
Prices for finished goods rose 0.2% in July following a revised 0.4% decline in the previous month, surprising consensus expectations on the upside. While energy goods prices declined, the headline index was boosted by resilience in core prices excluding food and energy and by finished food producers passing along previous increases in food commodity prices. However, inflation at earlier stages of production is moderating or turning negative, suggesting near-term relief for cost-stricken producers.

Industrial Production: 0.9%
Industrial production began the third quarter with a surge, led by auto assemblies and utilities usage. Overall output rose by 0.9% in July, including a 0.6% increase in manufacturing production. Motor vehicle output rose 5.2% because several automakers that typically close their plants for retooling did not because of low inventories. Outside of autos, manufacturing production was fairly soft at 0.3%, as the combination of weak final sales and rising inventories over the last few months is limiting growth.

Senior Loan Officer Opinion Survey: -21.8%
The latest senior loan officer opinion survey showed banks eased lending standards on all major types of loans, save for real estate. A net -21.8% of banks reported tighter standards for large firms compared with -16.4% previously. While lending standards are improving, demand remains weak. Only a modest net fraction of respondents reported an increase in demand for C&I loans. Meanwhile, demand for residential real estate loans weakened between surveys. There was little change in lending standards for consumers, and there was mention of an improvement in demand for credit card and auto loans, which is encouraging, as it's a sign that consumers remain resilient.

Business Inventories (MTIS):+ 0.3%
Total business inventories increased 0.3% in June after rising a downwardly revised 0.9% in May (previously 1%). The gain was smaller than expected and largely driven by wholesaler inventories. This gain, along with revisions to previous months, demonstrates that businesses are more closely managing their inventories in response to slowing consumer spending.

Wholesale Trade (MWTR): +0.6%
Wholesale inventories rose 0.6% in June after increasing a downwardly revised 1.7% in May (previously 1.8%). The rise in inventories fell short of the consensus expectation of a 1% gain. Sales rose 0.6% after falling a downwardly revised 0.3% last month (previously -0.2%). The inventory-to-sales ratio was unchanged at 1.16.

Jobless Claims: +408,000
Initial claims increased by 9,000 to 408,000 for the week ending August 13; the prior week's data were revised from 395,000 to 399,000. This was a slightly larger increase than expected, a reminder that the labor market has yet to break into sustained improvement. The latest week's pause in the recent trend of improvement is not overly concerning, but paired with still-anemic hiring, it points to a slow labor market turnaround.

 Job Openings and Labor Turnover Survey: 2.3%
The June JOLTS reports shows little evidence of further weakening labor market in June although the last two months show a marked change from earlier this year. Most measures were little changed in June from the prior month. As expected, gross hiring weakened, but only slightly compared with May; the economy generated 4.05 million jobs, down from 4.13 million in May. Hiring has remained fairly steady during the past four months. More surprising, the number of available jobs increased to 3.1 million from 3 million in May. Also surprising was the slight decline in layoffs following the May escalation. Total separations declined to 4 million from 4.15 million. Thus, net employment made little headway as both hiring and separations declined slightly.

Internet Sales (E-Commerce Sales): 47.5 bil
Retail e-commerce sales slowed slightly in the second quarter of 2011, advancing 3% q/q, compared with a revised 3.6% (previously 3.4%) in the first quarter. Internet sales rose 17.6% from a year ago.

NAHB Housing Market Index:+/- 15
The NAHB housing market index stayed level at 15 from July to August as slight improvements in present single-family home sales and prospective buyers' traffic were offset by a decline in expected single-family home sales. Regionally, a moderate increase in the Northeast index was offset by a decline in the Midwest index. The overall index has stayed practically level for over a year now.

MBA Mortgage Applications Survey: +4.1%
For the week ending August 12, 2011, the composite index increased 4.1% from the previous week, driven higher by another jump in refinance applications. The refinance index posted an 8% gain. Record-low mortgage rates are encouraging even more homeowners to refinance. Meanwhile, the purchase index fell 9.1%, indicating continued weak homebuyer demand.

Existing-Home Sales: 4.67 mil
Existing-home sales in July continued falling. Seasonally adjusted sales for July came in at 4.67 million annualized, below expectations and down by 3.5% from the revised sales total for June. Total sales are nevertheless substantially above their volume in July 2010. Practically all of the decline in July was accounted for by a 4% decline in single-family home sales, while sales of condos and co-ops remained level from June. The decline in sales volume over the past four months is symptomatic of the sputtering economic recovery and the poor recent labor market numbers.

New Residential Construction (C20): -1.5%
After the strong increase in June, homebuilding retrenched in July, falling to a pace of 604,000 annualized units. This is 1.5% below the revised June rate of 613,000. Declines in single-family housing starts were larger, falling 4.9% between June and July. Permit issuance similarly declined, falling 3.2% month to month. Completions increased 11.8% over the same period.

MBA Mortgage Applications Survey: 21.7%
For the week ending August 5, the composite index increased 21.7% from the previous week, buoyed by a boom in refinance applications. The refinance index climbed 30.4%, to finish the week at 3,625.7. Meanwhile, the purchase index retrenched slightly, slipping 0.9% to 184.2.

NAR Metro Prices: -2.8%
According to the NAR, year-to-year price declines are moderating, falling just 2.8% in the second quarter, about half the decline in the first quarter. Over the same period, home sales are down nearly 13%. On a regional basis, performance was mixed, with three of the four census regions posting year-to-year declines. Only the Northeast, where prices are up 5.4%, posted an annual gain. Price performance at the metro level was similar: 109 out of 150 metro areas are below year-ago levels.

Retail Sales : +0.5%
Retail sales rose 0.5% in July, the largest gain in four months. However, sales were led by gasoline stations. Excluding those and auto dealers, core sales grew 0.3%, down from the upwardly revised 0.5% June figure. Consumers continue to expand their spending only slowly in the face of weak job growth and volatile stock prices. However, the data now look a bit firmer than previously not only because of improved growth in July, but also because of upward revisions to prior months. Growth was led by miscellaneous retailers, gasoline stations, and electronics and appliance retailers. Sporting goods and hobby stores, department stores, and building supply stores were the primary losers.

Chain Store Sales Snapshot: -1.5%
The ICSC chain store sales index posted its third straight decline, falling 1.5% in the latest week. Stock market volatility may have contributed to the decline as weather was mixed and gasoline prices fell. Year-over-year growth moderated only slightly to 3.5% as sales fell in the corresponding week last year as well. While the slowest in six weeks, growth remains strong by 2011 standards. Consumers are still spending.

Oil Inventories: 354.0 mil barrels
Crude oil inventories increased by 4.2 million barrels during the week ending August 12, starkly contrasting with the consensus expectation of a 500,000 barrel decline. Gasoline inventories decreased by 3.5 million barrels, exceeding the consensus expectation of a 1.2 million barrel decline. Distillate inventories rose by 2.4 million barrels, exceeding the consensus expectation of a 550,000 barrel rise. Total petroleum demand fell moderately. This report should exert downward pressure on oil prices.

Natural Gas Storage Report: +50 bil cubic feet
Working gas in underground storage rose by 50 billion cubic feet during the week ending August 12, exceeding expectations of a 47 bcf increase. This report will push natural gas prices lower.