NEW YORK, June 11 (UPI) -- Investors, traders and the Federal Reserve returning from their long weekend will be greeted next week by fresh barrage of economic reports measuring retail inflation, wholesale inflation, retail sales, the nation's trade deficit, housing and a key reading on manufacturing conditions.
The Commerce Department will ignite the markets on Monday with its latest reading on retail sales, a key measure of the total receipts at stores that sell durable and nondurable goods.
Most economists on Wall Street are expecting the government agency to report sales jump 1.4 percent in May after declining 0.5 percent in April. Excluding the sales of autos, retail sales are expected to climb 1.0 percent after easing 0.1 percent a month earlier.
Analysts watch this report because consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed.
Meanwhile, the Commerce Department Monday is also expected to issue its monthly reading on the nation's international trade balance, which has posted a deficit almost continuously since the 1980s.
The international trade report measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.
Most economists on Wall Street are expecting the nation's international trade balance on goods and services to narrow to a deficit of $45 billion in April after widening to $46 billion in March after reaching a $42.1 billion shortfall in February.
Exports did rise during March but were outpaced by gains in imports.
Exports grow when foreign economies are strong. The weaker the foreign exchange value of the dollar, the less expensive goods and services are to foreigners, and this also helps spurt export activity. Imports grow when U.S. economic growth is robust. Imports are also spurred by a strong foreign exchange value of the dollar.
The international trade balance has posted a deficit almost continuously since the 1980s. Any trade deficit is a drag on U.S. GDP growth, but a smaller deficit adds to growth, while a larger deficit decreases GDP growth.
After digesting the trade gap, investors, traders and the Federal Reserve will be awaiting Tuesday's all-urban Consumer Price Index, a key measure of the average price level of a fixed basket of goods and services purchased by consumers.
Monthly changes in the CPI represent the rate of inflation.
The consumer price index is the most widely followed indicator of inflation in the United States. Just knowing what inflation is and how it influences the markets can put an individual investor head and shoulders above the crowd.
Inflation is a general increase in the price of goods and services. The relationship between inflation and interest rates is the key to understanding how data like the CPI influence the markets.
Economists on Wall Street are expecting the CPI to rise 0.4 percent in May after rising a more modest 0.2 percent in April. The core rate of inflation is widely expected to rise 0.2 percent -- matching its rise in April.
The report comes just a few days after Federal Reserve Chairman Alan Greenspan said the U.S. central bank is ready to raise interest rates and would accelerate the pace of increases if inflation exceeds the Fed's forecast.
The Federal Open Market Committee "is prepared to do what is required to fulfill our obligations to achieve the maintenance of price stability so as to ensure maximum sustainable economic growth,"' Greenspan said.
Greenspan sought to reassure investors that the Fed was not setting them up for a repeat of 1994, when the central bank starting tightening monetary policy with quarter-point increases in the overnight banking lending rate, only to follow with bigger increases to stem inflation. The Fed raised its the rate to 5.5 percent at year-end from 3 percent at the start of 1994.
Most economists are expecting the central bank to hike the overnight lending rate by a quarter percentage point at the conclusion of their two-day meeting on June 30.
Labor will also issue more on inflation with the Producer Price Index, which has been delayed twice and measures inflation at the wholesale level.
The Labor Department delayed its PPI report due to "unexpected difficulties" in computing the data.
The report was originally scheduled for release on June 11 but was rescheduled for June 10 because Federal agencies will be closed Friday, June 11, for a National Day of Mourning for former President Ronald Reagan.
The Producer Price Index is a measure of the average price level for a fixed basket of capital and consumer goods paid by producers. It measures price changes in the manufacturing sector. Inflation at this producer level often gets passed through to the consumer price index.
Economists on Wall Street are expecting the PPI to rise 0.6 percent after jumping 0.7 percent in April and 0.5 percent in March. Economists are expecting the PPI excluding food and energy prices to rise 0.2 percent after rising 0.2 percent in both March and April.
The Producer Price Index is a measure of the average price level for a fixed basket of capital and consumer goods paid by producers.
The PPI measures price changes in the manufacturing sector. Inflation at this producer level often gets passed through to the consumer price index.
Later in the week, Commerce will report on May housing starts, measuring the number of residential units on which construction is begun each month.
The Federal Reserve will issue its reading on industrial production in May. The report is a chain-weight measure of the physical output of the nation's factories, mines and utilities. The capacity utilization rate reflects the usage of available resources.
Industrial production shows how much factories, mines and utilities are producing. Since the manufacturing sector accounts for one-quarter of the economy, this report has a big influence on market behavior.
The capacity utilization rate provides an estimate of how much factory capacity is in use. If the utilization rate gets too high (above 85%) it can lead to inflationary bottlenecks in production.
The Federal Reserve watches this report closely and sets interest rate policy on the basis of whether production constraints are threatening to cause inflationary pressures. As such, the bond market can be highly sensitive to this report.
Economists on Wall Street are expecting industrial production to rise 0.8 percent in May after rising the same amount in April.
Investors will also be digesting the Conference Board's composite index of ten economic indicators that typically lead overall economic activity.
The index of leading indicators is designed to predict turning points in the economy -- such as recessions and recoveries. In the past ten years, this index has been less useful in predicting economic turning points, because the index tends to focus on manufacturing indicators. The economy is more service-oriented than it was 25 years ago.
