That raises the cost of transporting raw materials, the cost of turning these materials into products, and shipping products to retail outlets. The second number is the rise in the cost of materials. "Core" wholesale inflation (which excludes food and energy) rose by 0.4 percent in April. The third number is the rise in the "core" CPI (only 0.1 percent in April). How can businesses make money when material costs are rising faster than prices, and energy prices keep hitting new highs?
Total corporate profits declined in the last two quarters of 2007. This week we will learn that profits fell again in the first quarter. And numbers like, 135 - 0.4 - 0.1 - point to a fourth straight quarterly decline this spring. But the real bottom line is without a quick turnaround, the third quarter could be the fifth consecutive quarterly decline. Finally, recent economic data does not bode well for a quick turnaround.
Wednesday, May 28
8:30am Advance Report on Durable Goods Manufactures' Shipments and Orders (Bureau of the Census)
The ordering rate is weak because consumer and business demand remains weak. That probably means a very small rise in orders in April at best - still leaving "core" orders well below the level in December. This pattern could continue through the summer. And that means not enough new orders to sustain more than minimal increases in total industrial production in the current quarter, and perhaps the third quarter as well.
Thursday, May 29
8:30am Gross Domestic Product & Corporate Profits (1Q - 2008) (Bureau of Economic Analysis)
Hours worked declined by about 1 percent (annualized). But productivity growth was surprisingly strong. The preliminary 0.6 percent rise in GDP in the first quarter will be revised up, perhaps even as high as 1 percent. Growth in the current quarter may not be quite as strong. Also pay a lot of attention to the first estimate of profits. It is very likely that total profits fell for the third straight quarter, and are probably down again in the current quarter. These weak trends could be suggesting that after seeing jobs fall slightly in each of the past four months, there could well be another four months of job losses ahead.
10:00am Help-Wanted Advertising print (The Conference Board)
The forward indicators of labor market activity have been pointing to continued weakness, perhaps through the summer. Did this change in the latest report?
Friday, May 30
8:30am Personal Income and Outlays (Bureau of Economic Analysis)
Look for personal income to have risen by 0.2-to-0.3 percent, or about the same as the rise in spending. Keep in mind the spending numbers include spent at the gas station and supermarket. What is subject to constraint right now is consumer discretionary spending - because consumers are so nervous about what could be coming next. This is one more reason why weak growth is very likely to continue at least through the summer.
The domestic economy is weak but it isn't the only economy that shows some loss of momentum. Retail sales fell by 0.2 percent in the U.K. - the second straight monthly decline. Business confidence fell in Germany. The Tankan survey in Japan (March) was not as negative as some analysts predicted. And indeed, the LEI for Japan registered a small increase in March.
The Leading Economic Indicators for the U.K. and for Germany have been and remain flat to negative (though not as weak as the U.S. LEI). In fact, among the countries measured, only the Mexico LEI is showing a rising trend over the past two months (after three straight months of declines). It is clear the global economy has been slowed by rising fuel and food prices and sustained financial market turmoil. Indeed, the mid-May rally in various stock markets gave way in late May to some declines - as crude oil prices continued to hit new levels.
