By Theresa Sheehan

PRINCETON (SMRA) – The week ahead finishes up with the release of
the preliminary estimate for second quarter U.S. GDP Friday, with
markets expectations leaning towards sluggish growth in line with the
first quarter performance.

While the data is likely to be disappointing overall, it does put
the first half of 2011 in the rear view, and markets will be ready to
move on to see how the second half of the year shapes up.

Before Friday arrives, however, there are a number of other reports
that will round out the outlook for the housing market, manufacturing
sector, and consumer confidence.

The second quarter earnings season continues with a large number of
releases on the calendar. These will include a number of companies in
the oil industry, aircraft manufacturers, and some drug and chemical

The preliminary estimate of second quarter GDP will be released on
Friday at 8:30 ET. The number will include some assumptions for changes
in inventories, net exports, and consumer spending since the available
data for the quarter is not complete. Expectations are for growth
similar to the anemic 1.9% pace of the first quarter, albeit with a
somewhat different composition for growth. This is a disappointing pace,
but markets are prepared for a soft number.

The next batch of data for the housing market may help to improve
the outlook for overall conditions as the summer progresses.

Sales of new single-family homes in June will be reported at 10:00
ET on Tuesday. Higher starts of new homes hints that demand has
improved. With mortgage rates still very low by historical standards,
this may mean that consumers are opting for new construction in somewhat
higher numbers. Prices for new homes may also look more stable in June.

The NAR Pending Home Sales Index for June at 10:00 ET on Thursday
could offer a second month in which the data signal higher sales of
existing properties in the next few months. Sluggish resales in the
normally active spring months may have generated a little pent-up demand
that will be visible in the summer. But problems in valuing homes may
force some cancellations of contracts.

The S&P/Case-Shiller Home Price Index for May at 9:00 ET should
follow the lead of the FHFA House Price Index released on July 21.
Although prices for homes remain softer, the trend is improving and with
it, the outlook for housing.

The data on housing vacancies for the second quarter at 10:00 ET on
Friday will include rates of homeownership.

The last monthly reports on consumer confidence in July will be
released next week. The Conference Board’s Consumer Confidence Index is
at 10:00 ET on Tuesday, and the final Reuters/University of Michigan
Consumer Sentiment Index is at 9:55 ET on Friday (preliminary reading
63.8). Data available so far for July indicates that consumers’ outlook
took a turn downward at the start of the month. It may have regained
some ground as July progressed, but overall should be down compared to

Initial jobless claims for the week ended July 23 at 8:30 ET on
Thursday should be past any distortions that might have been apparent in
the seasonal adjustment factors early in July and the influx of
government workers in Minnesota due to a government shutdown.

The Employment Cost Index (ECI) for the second quarter at 8:30 ET
on Friday will get lost behind the release of the GDP numbers at the
same time. It should be consistent with slow growth in most wages and
salaries, and show some moderation in rises in benefits.

Data for the manufacturing sector will include the next round of
surveys from the Fed District Banks. The Richmond Fed’s Manufacturing
Survey for July is set for 10:00 ET on Tuesday, and is the most closely
watched after the New York and Philadelphia indexes. It tends to lead
the other surveys by a month or two. In June, the Richmond general
activity index moved back into positive territory after briefly turning
negative in May. It will likely confirm slightly improved activity for

The Dallas Fed’s Texas Manufacturing Survey for July will be
released Monday at 10:30 ET. That District’s general activity index has
been trending lower for three months, and was negative in May and June.
It also should show some improvement in July.

The Kansas City’s Survey of Manufacturing for July will be at 11:00
ET Thursday. This report’s general activity index softened in May, but
rebounding in June, and overall has been consistent with modest
expansion for the last 18 months.

The Chicago Purchasing Managers Index for July at 9:45 ET Friday
will provide the last new data in advance of the release of the ISM
national manufacturing index on Monday, August 1. The Chicago PMI
includes some non-manufacturing industries’ comments, but it should be
largely of a piece with the other regional surveys with only moderate
new orders, modest employment growth, and easing in price pressures.

The Fed’s Beige Book will provide anecdotal evidence of conditions
in the US economy for June through mid-July. This is the period in which
much of the economic data showed more softness. Businesses’ comments
will probably reflect a perception of slower activity, but it is
doubtful there will be any outright contraction in growth. The District
Bank most likely to compile the next issue is Philadelphia. However, it
is also possible that duty will fall to Kansas City or Minneapolis.

The Chicago Fed’s National Activity Index for June at 8:30 ET on
Monday will probably be consistent with a sluggish economy.

With the approach of August, very few Fed officials are going to be
making public remarks. The period between the Chairman’s semiannual
monetary policy testimony and the Kansas City Fed’s annual Jackson Hole
Symposium tends to be a fallow period for developments in monetary
policy. This year the worries about the lackluster recovery may mean a
little more talk than usual, but on the whole public speaking calendars
are going to be thinly scheduled. Also, next week is the last before the
traditional press blackout period in advance of a meeting of the Federal
Open Market Committee. The next is on August 9.

The Board of Governors will meet on Monday at 11:30 ET to consider
discount rate policy. No change is expected from the sentiments
published in the most recent discount rate minutes. While a few District
Banks (Dallas and Kansas City) consistently have requested a 25 basis
point hike in the primary credit rate from the current 75 basis points,
the Board had declined to do so. The argument in favor is that it would
help normalize policy, and that effectively it would have no impact with
discount window borrowings so low. The argument against is that markets
would interpret this as a signal the Fed is ready to start removing
accommodation, and that it does no harm to leave it for the moment.

The only major central bank monetary policy announcement scheduled
this week is the Reserve Bank of New Zealand on Thursday. Currently the
Bank’s policy is to keep the official cash rate on hold “for now” at

Treasury Auctions

New 2-, 5-, and 7-year notes will be auctioned on Tuesday-Thursday,
respectively. These will settle on Monday, August 1.

The next refunding package will be offered on Wednesday, August 3.
How that shapes up will be determined by if the debt limit is addressed
in time. Borrowing requirements will be released on Monday, August 1.

The Treasury is currently using extraordinary measures to keep the
debt from breaching the statutory limit. This may have an impact on the
announced sizes of the offerings of bills and/or coupons in the coming

** Stone & McCarthy Research Associates **