The Week Ahead

A flurry of economic data including reads on inflation and GDP will dominate local news, while US employment and labour market data will also be of interest.

Graph for The Week Ahead

A busy week

The start of a new month ushers in a barrage of economic data, with a Reserve Bank board meeting thrown in for good measure. Over the past week, parts of the economic growth jigsaw puzzle were released and on Wednesday, the official economic growth figures for the June quarter are issued.

In the US the spotlight shines strongly on Friday’s employment data (non-farm payrolls). Meanwhile in China, key manufacturing data is released on Monday, with services sector data on Wednesday.

In Australia, the week kicks off on Monday when the Australian Bureau of Statistics releases a publication entitled Business Indicators, containing figures on sales, profits, inventories and wages. While the profits data attracts most attention, the other data is useful in gauging the health of the broader economy.

Also on Monday, TD Securities and the Melbourne Institute release the monthly inflation gauge for August alongside the RP Data-Rismark Home Value index and the Performance of Manufacturing Index. There are no signs of inflationary pressures at present while home prices probably lifted by 1.2 per cent in August after an outsized 1.6 per cent gain in July.

On Tuesday the Reserve Bank Board meets in Adelaide to decide interest rate settings. Board members are unlikely to display any significant angst about how the economic recovery is panning out. Activity levels have been healthy and the Aussie dollar has barely budged, holding around US93c.

In addition the governor recently testified in front of the House of Representatives Economics Committee and he made it clear that rate hikes are certainly not on the agenda. We expect the Reserve Bank to stay on the interest rate sidelines with board members continuing their efforts to gauge how the economy tracks over coming months.

Also on Tuesday the current account data for the June quarter is issued with plenty of interest in the extent to which net exports (exports less imports) boosted economic growth in the quarter. In addition the ABS releases data on building approvals and government finance. We tip a 7 per cent rise in July approvals after the 5 per cent fall in June.

On Wednesday the ABS issues June quarter gross domestic product or economic growth data. On current indications the economy recorded modest growth of around 0.3 per cent in the quarter, with annual economic growth easing from 3.5 per cent to around 2.9 per cent, just below longer-term averages.

Also on Wednesday the Reserve Bank governor will delivers a speech, but the real question will be what can the governor say that constitutes something ‘new’. The Performance of Services gauge and new car sales data are also released on Wednesday.

On Thursday, international trade, tourist arrivals and retail trade data are released. Over the past three months sizeable trade deficits have re-appeared, largely driven by a slump in exports of metal ore and minerals, particularly coking coal. And once again a trade deficit of $1.4 billion is tipped for July.

Retail trade figures have rebounded after the post-budget weakness. And given the ongoing lift in consumer confidence, it is likely retail sales lifted by 0.4 per cent in July, supported by strength in housing-driven activity.

Overseas: US employment data & global manufacturing figures in the spotlight

In the US, the week kicks off on Tuesday with the ISM manufacturing gauge, alongside new figures on construction spending. Economists tip a modest fall in the ISM gauge from 57.1 to 56.9, although it will remain firmly in ‘growth territory’ -- above the 50 line that separates expansion from contraction. The July data on construction spending is released the same day, with a 0.8 per cent lift expected.

On Wednesday automobile sales are released together with factory orders and the usual weekly data on housing finance activity. The Federal Reserve also issues its Beige Book, a summary of conditions across the 12 Fed districts.

On Thursday the focus is on the labour market with ADP employment index, productivity figures, weekly jobless claims, Challenger job layoffs and unit labour costs measures released. Also the ISM services index and the trade data are released. The trade deficit for July is expected to come in at around $42bn.

And on Friday in the US, the pivotal non-farm payrolls or employment data is released. The timing of the first interest rate increase fundamentally depends on the health of the job market. So clearly the jobs data hogs the spotlight. Economists expect that 210,000 jobs were created in August, with the unemployment rate expected to ease marginally from 6.2 per cent to 6.1 per cent.

In China, the official manufacturing gauge is released on Monday alongside the alternate HSBC measure while the services gauge is expected on Wednesday.

Australian profit-reporting season

The Australian profit-reporting season is coming to a close and CommSec has tracked all the earnings results of ASX 200 companies to obtain a comprehensive picture of the aggregate health of Corporate Australia.

So far 120 companies have reported results for the twelve months to June. And in aggregate, profits are up 40.5 per cent on a year ago -- clearly a very strong result. Interestingly, if Telstra, CBA and BHP Billiton are excluded, profits are up an even stronger 77 per cent.

So the good results aren’t influenced by heavyweight stocks. In fact 67.5 per cent of all companies recorded higher profits over the year while 92 per cent (all but 10 companies) recorded a profit for the past financial year.

While aggregate revenues only lifted 4 per cent over the year, they still outpaced a small 2 per cent lift in cost of sales or expenses. Clearly efficiency and productivity have been watch words over the past year.

Savanth Sebastian, CommSec