Key U.S. Data Releases and Events

While crude oil and gasoline prices have moved up sharply for several months, natural gas prices have remained contained at low levels, as the weak economy continues to push up natural gas in storage to well above normal levels—that reality should tether further upward speculative pressure on crude oil prices.

Consumer and producer price indicators next week should paint a picture of flat core prices overall. The pricing environment is at worst benign, and the underlying reality—as corroborated by the recent Fed Beige Book—is probably slightly deflationary. Ultimately, this should cool off recent severe downward pressure on bond prices.

Indicators on real activity in the economy next week will be a little ambiguous, as industrial production is expected to see another hefty decline in May, pulled down by lower auto production. Housing starts and permits should see a very mild bounce, but housing market conditions overall remain disturbingly fragile.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, June 16 – Housing Starts and Building Permits (May)

Starts

• IHS Global Insight: 0.498 Mil.
• Consensus: 0.485 Mil.
• Last Actual: 0.458 Mil. (Apr.)

Permits

• IHS Global Insight: 0.513 Mil.
• Consensus: 0.500 Mil.
• Last Actual: 0.498 Mil. (Apr.)

What to Look For

• Housing starts to bounce up 8.7% and permits to rise 3.0%.

Implications

The market for single-family homes appears to have hit bottom (although it is too soon to make a call). We are projecting a small increase in single-family homes this month. The market for multi-family homes is in a deep slump, but we are also projecting an increase in multi-family starts in May, since we suspect that April's drop (to a record low) was partly "statistical noise." The housing market has been showing signs of convergence towards a cyclical bottom, but the recent spike in Treasury bond yields and mortgage rates could easily cause some short-term indigestion and frustrate the housing recovery.

Tuesday, June 16 – Producer Price Index (May)

Total

• IHS Global Insight: +0.5%
• Consensus: +0.6%
• Last Actual: +0.3% (Apr.)

Core

• IHS Global Insight: +0.1%
• Consensus: +0.1%
• Last Actual: +0.1% (Apr.)

What to Look For

• The producer price index is expected to rise 0.5% in May.
• The core index will edge up very slightly.

Implications

Food prices will likely continue their advance, building on April's strong 1.5% gain. Gasoline prices surged during the month, helping the energy category to a roughly 2% increase, dampened by anticipated declines for electricity and natural gas. Excluding food and energy, core prices should be little changed. Demand for durable goods and capital equipment remains weak due to very low capacity utilization rates and continued downward pressure on nonfinancial sector profits.

Tuesday, June 16 – Industrial Production (May)

• IHS Global Insight: -1.1%
• Consensus: -0.9%
• Last Actual: -0.5% (Apr.)

What to Look For

• Industrial production had another weak month in May, sliding 1.1%.

Implications

Light-vehicle unit production skidded almost 15% in May as automakers shut down for inventory adjustments or, in Chrysler's case, during bankruptcy proceedings. Weather was mixed, warmer than normal in the South, but cooler than normal in the North—probably a minor plus for utility production, as cooling in the South trumps heating in the North in May. Most of manufacturing had a weak month, and it was a very bad month if manufacturing hours-worked (down 2.1%) is any indication. Fortunately, hours have not matched up that closely with production lately, or the production drop could be as much as half a percentage point worse.

Wednesday, June 17 – Consumer Price Index (May)

Total

• IHS Global Insight: +0.3%
• Consensus: +0.3%
• Last Actual: 0.0% (Apr.)

Core

• IHS Global Insight: +0.1%
• Consensus: +0.1%
• Last Actual: +0.3% (Apr.)

What to Look For

• The overall consumer price index is projected to advance 0.3%.
• The core index likely edged up only slightly.

Implications

Gasoline prices rose more than usual in the runup to the Memorial Day holiday, paving the way for a near 2% increase in the energy category, despite a slide in electricity and natural gas costs. Excluding food and energy, core prices likely increased 0.1%. Recent surveys indicate little or no pricing power, and light vehicles in particular saw very steep discounts in May as dealers scrambled to reduce inventories.