by Calculated Risk on 7/16/2011 11:09:00 AM
Saturday, July 16, 2011
Summary for Week Ending July 15th
Last week was filled with disappointing data. So much so that Goldman Sachs downgraded their forecast last night:
Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%. Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012.Before we get to the data, there were a couple other key stories last week: 1) the European bank stress tests disappointed most analysts (only a few banks were required to raise capital, see from the Financial Times: Banks’ stress test pass rate under fire), and 2) the debt ceiling negotiations continued, although this appears to be almost over (see: Debt Ceiling Charade: Almost Over).
The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations.
...
One key question in coming months is whether final demand recovers to the 2%-2½% pace that is probably necessary to keep GDP growth near trend and prevent the unemployment rate from rising more noticeably.
• Retail Sales increased 0.1% in June
On a monthly basis, retail sales increased 0.1% from May to June (seasonally adjusted, after revisions), and sales were up 8.1% from June 2010.
![Retail Sales](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhK5uWT3kdSPE8FaFf9mKbB-0T5Ka11myoo9d8Xqk5VZknGqPrQ7D6qB4yAZCNNJS_T0a6E9VoV9Xq2WyJCX1yErTjNoM3S_e-2yAtuKc3uIHdc09DoMsAHUwhCxVSgpcq6BUUASw/s320/RetailSalesJune2011.jpg)
This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).
Retail sales have been mostly moving sidways since March.
Retail sales are up 16.6% from the bottom, and now 2.5% above the pre-recession peak.
This was about at expectations for no change in retail sales. Retail sales ex-autos were unchanged, and gas station sales declined 1.3% last month as prices fell. Another weak retail sales report ...
• Trade Deficit increased sharply in May to $50.2 billion
The Department of Commerce reports:
[T]otal May exports of $174.9 billion and imports of $225.1 billion resulted in a goods and services deficit of $50.2 billion, up from $43.6 billion in April, revised. May exports were $1.0 billion less than April exports of $175.8 billion. May imports were $5.6 billion more than April imports of $219.4 billion.
![U.S. Trade Exports Imports](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFYOtpiSBhaMCd-gmsupPBrHoJoL6fMsObQfH7IlgSdGM6Q4p7HmlY5bt5wMdHZ7NciyPOI_MRmwFdTqoKCM7xEWRTI6GghxsNPxzs6dMxVQBvbftL1RVhjuwYKdOCuGqfBEzm9Q/s320/TradeBalanceMay2011.jpg)
The petroleum deficit increased in May as both prices and the quantity of oil imported increased. Oil averaged $108.70 per barrel in May, up from $103.18 per barrel in April, and up from $76.95 in May 2010. There is a bit of a lag with prices, and import prices will probably be a little lower in June.
The trade deficit with China increased to $24.96 billion (NSA), so once again the deficit is mostly oil and China.
• Industrial Production increased 0.2% in June, Capacity Utilization unchanged
![Capacity Utilization](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZq9dWfZB2Grw3YMtwrc0IFA_PLxBiJP_Wdde0MJf0zwN1h3m5K0vVKF_vHr7zvTYcuJI_U-v3yaQFNlMevnzG0WKWcaqktCiI4HKqeuIWQMSa5SoVfcv5wAKXFkN2PJfj6mIlLw/s320/CapUtilJune2011.jpg)
This graph shows Capacity Utilization. This series is up 9.4 percentage points from the record low set in June 2009 (the series starts in 1967).
Capacity utilization at 76.7% is still "3.7 percentage points below its average from 1972 to 2010" - and below the pre-recession levels of 81.2% in November 2007.
![Industrial Production](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisfNYqhWmWlyQsz2BKSVk-k7E1XrC2I-cCE1j5O7WJkAt7xmx4t7K4vTQWi07Z47HOPXxLASnvsDylDbHuSjnxaRG9bYPS_qbzWMqPB2Xo6iReYFaEa_pcBwbtJCHRBWKLRRY8kQ/s320/IPJune2011.jpg)
Both industrial production and capacity utilization have been moving sideways recently. This was below the consensus forecast of a 0.4% increase in Industrial Production in June, and an increase to 76.9% for Capacity Utilization.
The suggests there is still significant excess industrial capacity.
• NFIB: Small Business Optimism Index "basically unchanged" in June
From the National Federation of Independent Business (NFIB): Small Business Optimism Stagnates
![Small Business Optimism Index](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh784czN8R1F-LllO3YmAG7TvlCxAm6viP9eJj1VJKRuoX5ZNqcRozzwJ2B_XUa6bqMyYS-jAODTPQWGCw3oRxy28OyyVP6L-agGxEmZUyEPYEKJzoO4WgRYgwrWQeaMcCdnM0Zyw/s320/NFIBJune2011.jpg)
This index is still very low - and had been trending up - but optimism has declined for four consecutive months now.
This graph shows the net hiring plans for the next three months.
![Small Business Hiring Plans](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5AafzEKfpYB9Zl1o6AFe1Crhvc9pjVmsmYWWLBWUZpKPBodLVdS0MOqp4_pFwmduCJbHb2aRFWk1I1NEVVVvNAMHKwAijth7K99vqpJBKY7IiNLKiSKMaQE7dvbgF1cveR3cEkA/s320/NFIBHiringJune2011.jpg)
According to NFIB: “Although June’s employment growth was weak, 15 percent (seasonally adjusted) of small firms reported unfilled job openings, a 3 point increase and an indication that the unemployment rate will ease back below 9 percent in the coming months. "
Weak sales is still the top business problem with 24 percent of the owners reporting that weak sales continued to be their top business problem in June.
• Ceridian-UCLA: Diesel Fuel index increased in June
![Pulse of Commerce Index](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRHEuKrRsukt-6zntnR3ystleNmXigHKdY9FO24q4V0QKVxAIHu1folr7TRehFIlqjlNahK9yzG_uAbtmulqmSMuluSBu-9FiWbbiBbHmJkcw_B2pyLKSf796Z2WBmOAaCAVM40Q/s320/PCIJune2011.jpg)
This graph shows the index since January 2000.
This index has mostly been moving sideways all year. As Leamer noted, this "could be the start of a positive trend, but a one month spike does not make a trend, particularly in light of the many false starts experienced over the last year."
• Consumer Sentiment declines sharply in July
The preliminary July Reuters / University of Michigan consumer sentiment index declined sharply to 63.8 from 71.5 in June.
![Consumer Sentiment](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhtTWfUkLhc0xH8GN1cW0lzmsqYKyH_OTez5vNq0j3D2FVqdiOCI3GyQIQU_8RTsJoEcyyDAEvv9X2a8LC3VCg0NzJtA61wBUc27jOjV3wdkcaeAmoFmlPVoBp_JL90RAqz_plmuQ/s320/ConsumerSentimentPrelimJuly2011.jpg)
This was well below the consensus forecast of 71.0 and definitely in the recession range.
• Other Economic Stories ...
• AAR: Rail Traffic soft in June
• BLS: Job Openings unchanged in May
• NY Fed: Empire State Survey indicates contraction
• Key Measures of Inflation ease in June
• Eight Banks Fail European Stress Tests
Have a great weekend!