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Weekly Observatory

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August 11th, 2008

Mon, Aug 11 2008, 13:06 GMT
by Marcial Nava, Alejandro Neut

BBVA Bancomer

Retail & Food Services Sales (July, Wednesday 8:30 ET)

F: 0.0, 0.4%    C: 0.1, 0.5%      P: 0.1, 0.8%

We expect July’s retail sales to remain unchanged from the previous period. Consumers continue diverting spending into nondurable goods away from big ticket items. In fact, in July auto sales tumbled to 12.6 million, their lowest level in 12 years and 2007. While the tax rebates probably helped to ease some pressures, the magnitude of this additional income was significantly lower than in June. The biggest risk to the economy is a sharp correction in consumer spending. Households face lower real income gains –as a result of high inflation and declining payroll- and tighter credit conditions.

Industrial Production & Capacity Utilization (July, Friday 9:15 ET)

F: -0.1, 79.7% C: 0.0, 79.8% P: 0.5, 79.9%

We expect July’s industrial production to decline 0.1% after solid gains in June. Industrial activity continues benefiting from strong sales abroad and still solid demand for some business products and equipment. However, the ongoing drag from the housing sector and a slowdown in consumer spending should restrain growth in key sectors such as the auto industry. Capacity utilization will edge slightly lower with strong levels in the energy sector.

Headline CPI & Core (July, Thursday 8:30 ET)

F: 0.5, 0.2% C: 0.4, 0.2% P: 1.1, 0.3%

Both energy and food prices continued rising in July, although at a more moderate pace than in the previous month. Thus, we expect headline inflation to halve to 0.5% after gaining 1.1% in June. The major impact will come from natural gas and electricity which declined around 12% during July. While gasoline prices have come down in the last few weeks, July’s average is only slightly lower than the previous month, thus the impact will be mostly felt in August. Core inflation remains relatively stable with low to moderate pass-through signals. We continue to expect these pressures to ease off as the economic downturn intensifies. July’s expected 0.2% would be welcomed, by most FOMC members. The most critical issues continue to be wage gains –which have remained well contained- and inflation expectations -which have already shown strains at the short-term end.

Consumer Sentiment (August, Prel., Friday 10:00 ET)

F: 63.0 C: 62.0 P: 61.2

We don’t expect a significant change in consumer sentiment for August although some improvement is likely. On the one hand, consumers got some relief during the final weeks of July, as gasoline prices trended downward after reaching record high levels in mid-July. On the other hand, conditions in the labor market weakened further, withholding some of the positive effects stemming from lower energy prices.

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Published on  Mon, Aug 11 2008, 13:10 GMT