US Economic Indicators Preview

(Week of 6 to 12 September 2010)

• Consumer credit (Jul): downward trend continues
• Trade deficit (Jul): somewhat narrower due to slower domestic demand

In preparation for the FOMC meeting on 21 September, the Beige Book is likely to report that the economic recovery has decelerated somewhat - particularly in manufacturing, which had been the pillar of the upswing until now. However, the latest ISM index showed that manufacturing is still expanding quite robustly. Growth in private sector employment will probably be described as moderate. The inflation outlook will have remained subdued.

Consumer credit has been declining in every month since October 2008. Credit availability remains tight, but consumers' demand for credit is also muted due to balance sheet adjustments. This is reflected in the savings rate which has gone up to about 6%. We expect consumer credit to have fallen by about $6bn mom in July, only slightly less than the last 3-month average of -$6.5bn.

Initial jobless claims fell for the second time in a row in the week ending 28 August, albeit only slightly this time, by 6k to 472k. The current level is still elevated showing that unfavourable labour market conditions still prevail. We predict that jobless claims will have declined somewhat again to 465k in the week ending 4 September.

The trade deficit widened sharply by about $8bn to $49.9bn in June. However, petroleum imports were not to blame, as the deficit ex petroleum actually increased more. We predict that the trade deficit will have narrowed to about $48.0bn in July: exports, which had fallen by 1.3% mom, could have rebounded by about 2% mom due to the global upswing. But imports might only have increased moderately after having jumped by 6% in May and July. Growth in domestic demand has slowed, partly due to weaker demand for capital goods. According to figures from the Department of Energy, oil imports could have remained more or less unchanged. The real trade deficit is likely to have narrowed too. But, as it widened sharply in June, it is likely to have a significant negative impact on GDP growth in Q3 again.

Wholesale inventories increased by a mere 0.1% mom in June, indicating that the inventory cycle could be approaching its end. However, given that the inventories-to-sales ratio is still quite low, we expect wholesale inventories to have risen by 0.4% mom in July.