This past week equities were up partly on hope that the Federal Reserve, the ECB, and People's Bank of China would act to loosen policy. More realistically, the strength in equities may have been corporate earnings beating lowered expectations.

Recap of US Markets

STOCKS

In a relatively quiet week of economic news, equities headed higher to continue a weekly winning streak for most major indexes.  Stocks started the week on a positive note as traders continued to react favorably to the prior Friday’s employment report.  Also, there was hope for more European Central Bank assistance for the troubled Eurozone and U.S. earnings reports were favorable.  Gains were even healthier on Tuesday with upward lift starting from Europe on news of sluggish German industrial orders which hinted at further easing by the European Central Bank.  Also, Spanish and Italian yields eased, indicating a better chance for those countries to be able to fund sovereign debt.

Equities were little changed Wednesday with little economic news.  On Thursday, stocks were mostly up on expectations of loosening by the People’s Bank of China after softening in indicators for China.  Also supporting U.S. equity gains were a drop in initial jobless claims and a narrowing in the U.S. trade deficit.  Equities were mostly up Friday on expectations of pending monetary ease in China after a report of sluggish exports.

Equities were up this past week. The Dow was up 0.9 percent; the S&P 500, up 1.1 percent; the Nasdaq, up 1.8 percent; the Russell 2000, up 1.7 percent; and the Wilshire 5000, up 1.2 percent.

For the year-to-date, major indexes are up as follows: the Dow, up 8.1 percent; the S&P 500, up 11.8 percent; the Nasdaq, up 16.0 percent; the Russell 2000, up 8.2 percent; and the Wilshire 5000, up 11.0 percent.

Markets at a Glance

Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.

BONDS

Treasury yields ended the week up with short rates rising modestly and longer rates up moderately.  Again, there was little economic news during the week.

The week started with rates flat the first day of trading with little economic news. Yields firmed moderately on Tuesday as favorable corporate earnings attracted funds into the stock market.  The 10-year bond rate hit a one-month high—though remained relatively low.  Again with little economic news at mid-week, rates nudged up as traders sought higher yields in equities. Thursday, rates barely rose as initial jobless claims declined.  Rates eased slightly Friday on news of a drop in China’s export growth—resulting in modest flight to safety.

For this past week Treasury rates were up as follows: 3-month T-bill, up2 basis points; the 2-year note, up 2 basis points; the 5-year note, up 5 basis points; the 7-year note, up 5 basis points; the 10-year note, up 9 basis points; and the 30-year bond, up 10 basis points.

OIL PRICES

The spot price of West Texas Intermediate was little changed for the week.  There was little conviction most of the week.  Two moderate moves occurred Tuesday and Friday.  On Tuesday, crude rose a little under $2 a barrel on hopes of an improving economy and on tensions in the Middle East—notably Syria with it implicit that Syrian ally Iran is related. A weaker dollar and boost in equities added to lift in crude which hit a two-month high.  Crude dipped a little over a buck a barrel Friday on the report of slower growth in China’s exports.

Net for the week, the spot price for West Texas Intermediate firmed 90 cents per barrel to settle at $92.30.

The Economy

News was limited this past week. There was face value good news on trade where however the details were actually mixed.  The consumer sector is still wavering but at least purchasing power is not being eroded by import prices.

International trade deficit narrows in June

At face value, the headline was good but some details may not be. The U.S. trade balance in June shrank, again thanks in part to lower oil prices but also from a general import dip.  The trade deficit decreased to $42.9 billion from $48.0 billion in May.    Exports advanced 0.9 percent, following a 0.3 percent rise in May.  Imports shrank 1.5 percent after a 0.8 percent decrease in May.

Surprisingly, the narrowing in the trade gap was led by the non-petroleum goods gap which shrank to $34.4 billion from $37.5 billion in May.  With help from lower prices, the petroleum deficit also decreased—to $22.5 billion in June from $24.8 billion the prior month.  The services surplus slipped to $14.6 billion from $14.9 billion.

There are pluses and minuses in the detail.  The big plus is that exports were positive.  Despite recession in parts of Europe, exports are still growing. Looking specifically at goods (Census basis), exports rose 1.3 percent, following a 0.5 percent gain in May.

The big negative was a dip in goods imports excluding petroleum which suggests softness in demand or at least expectations by business for softness in consumer and business spending.  These imports dipped 0.9 percent after a 1.0 percent rise in May.  However, these numbers are a little volatile on a monthly basis and it is too early to determine what retailers are thinking about demand for the key holiday season at year end.

The latest numbers will help Q2 GDP revisions for net exports. However, there may be offsetting downgrades to business investment in equipment and inventories.

Import prices continue to dip

Import prices clearly are helping to keep inflation soft in the U.S. Import prices fell 0.6 percent in July for the fourth straight decline and the third straight sharp decline. And contraction was not isolated to swings in oil prices as import prices excluding petroleum fell 0.3 percent, matching the drop in May, and following a 0.1 percent dip in April.

Year-on-year, total import prices were at minus 3.2 percent with the ex-petroleum reading at minus 0.5 percent for the largest year-on-year drop in nearly 3 years.

A look at finished goods also points to contraction. Import prices for consumer goods were down 0.1 percent in both June and May. Import prices for capital goods were down 0.1 percent for the third negative reading in 4 months.

A shift over to the export side showed a rebound of 0.5 percent, following a 1.7 percent drop in May.  The rebound was due to a 6.4 percent monthly surge in agricultural prices.  Nonagricultural prices dropped 0.3 percent in June.

Year-on-year, total export prices were down 1.2 percent. Excluding agriculture, prices were at a year-on-year rate of minus 1.9 percent.

Inflation pressures in international trade for the U.S. are basically soft except for agricultural products.  Alone, this has minor impact on overall inflation.

Consumer credit growth slows in June

Consumers were cautious about general spending in June but colleges are benefitting from the weak jobs market. Total credit outstanding rose $6.5 billion in June, following a $16.7 billion jump the month before.

The latest gain was led by non-revolving credit, gaining $10.2 billion in June after a $9.2 billion rise in May. Non-revolving credit is mostly for motor vehicle purchases and student loans.  As unit new motor vehicle sales increased 3.1 percent in June, some of the boost likely was auto related.  But in recent months, non-revolving credit has been lifted by strong gains in student loans.  This reflects a weak job market ("May as well get a graduate degree since I can’t get a job anyway") and likely undergraduates needing more help as parents struggle financially.

The revolving credit component was not good in June, declining $3.7 billion but following a $7.5 billion boost in May. The June dip largely reflected soft retail sales for the month.

Productivity up in Q2 but on slower growth in hours

Productivity growth for the second quarter improved despite a slowing in output.  Nonfarm business productivity rebounded an annualized 1.6 percent from a 0.5 decline in the prior quarter.  Unit labor costs decelerated to 1.7 percent annualized, following a 5.6 percent increase in the first quarter. The consensus projected a 0.9 percent rise.

The rise in second quarter productivity reflected a 2.0 percent gain in output after a 2.7 percent boost in the first quarter. But the key factor was a slowing in hours worked to a 0.4 percent rise in the second quarter from 3.2 percent in the first.

Unit labor costs slowed on a 3.3 percent gain in compensation after a 5.1 percent spike in the first quarter.  The first quarter surge may have been due to one-time bonuses.

Year-on-year, productivity was up 1.1 percent in the second quarter, following 1.0 percent the quarter before.  Year-ago unit labor costs were up 0.8 percent, compared to unchanged in the first quarter.  Compensation gained 1.9 percent versus 1.0 percent in the first quarter year-on-year.

What do the numbers suggest for any improvement in the labor market'  You can get more than one view on this.  One view is that businesses have squeezed labor costs all that is possible and that companies must hire to do more business.  A competing view is that demand (output) is still too sluggish and improvement in job gains will not take place until demand is up.  The truth is probably somewhere in between, still leaving job growth lackluster in the near term.

The bottom line

The latest numbers were limited and mixed.  The best news was that exports are still growing.  This is good for the manufacturing sector.  The productivity numbers put company profit growth on the fence.  With unit labor costs trending low, a boost in output and revenues could lead to upside potential for profits.  But lack of output growth leaves profits languishing—bearing in mind that expectations for profits are rather low.

Looking Ahead: Week of August 13 through 17

The consumer and manufacturing sectors have been wavering and we get news on those fronts.  The highlight of the week likely is an update on consumer spending with the retail sales report. Consumer sentiment also prints.  Manufacturing news posts with Empire State, industrial production, and Philly Fed.  Housing recently has shown modest improvement and the housing starts report could indicate if that trend continues.

Tuesday

The NFIB Small Business Optimism Index fell 3 points in June to 91.4 in a setback that reversed year-to-date improvement. Labor market measures were especially weak with job creation showing its first contraction of the year. Also accounting for much of the decline were capital investment plans and earnings trends. The report also notes special weakness in consumer spending, especially on services. Only 1 of 10 components improved in the month.

NFIB Small Business Optimism Index Consensus Forecast for July 12: 91.3

Range: 89.0 to 92.5

The producer price index in June edged up 0.1 percent, following a sharp 1.0 percent plunge the prior month.  The core PPI rose 0.2 percent, following a 0.2 percent gain in May. By major components, energy dropped 0.9 percent after falling 4.3 percent in May.  Food costs rebounded 0.5 percent, following a 0.6 percent decline.  Within the core, accounting for 70 percent of the June increase, the index for light motor trucks moved up 1.4 percent. Higher prices for major household appliances and pet food also contributed to the rise in the finished core index.

PPI Consensus Forecast for July 12: +0.2 percent

Range: -0.2 to +0.6 percent

PPI ex food & energy Consensus Forecast for July 12: +0.2 percent

Range: 0.0 to +0.2 percent

Retail sales in June were much softer than expected, including auto sales which contradicted manufacturers' numbers for the month. Retail sales in June fell 0.5 percent, following a 0.2 percent decrease in May.  Motor vehicle sales dropped 0.6 percent, following a 0.8 boost in May.  Excluding motor vehicles, retail sales decreased 0.4 percent after declining 0.4 percent in May. Gasoline sales were a big factor, dropping 1.8 percent, following a 2.0 percent fall in May.  Sales excluding autos and gasoline in June slipped 0.2 percent, following a 0.1 percent dip in May. Core sales showed widespread weakness in June.

Retail sales Consensus Forecast for July 12: +0.3 percent

Range: 0.0 to +0.4 percent

Retail sales excluding motor vehicles Consensus Forecast for July 12: +0.4 percent

Range: +0.1 to +0.7 percent

Less motor vehicles & gasoline Consensus Forecast for July 12: +0.5 percent

Range: +0.3 to +0.7 percent

Business inventories in May rose 0.3 percent, outpacing sales which fell 0.1 percent. The mismatch for May raised the stock-to-sales ratio one notch to 1.27 for the highest level since May last year.  Importantly, the trouble was centered in the final demand component, that is retail sales where inventories surged 1.0 percent in the month against a 0.2 percent decline for sales.

Business inventories Consensus Forecast for June 12: +0.2 percent

Range: -0.1 to +0.5 percent

Wednesday

The consumer price index was unchanged in June after falling 0.3 percent in May. Excluding food and energy, the CPI rose 0.2 percent, following a 0.2 percent increase in May.  By major components, energy declined 1.4 percent after falling a sharp 4.3 percent in May. Gasoline fell 2.0 percent, following a plunge of 6.8 percent the prior month. Food prices in June gained 0.2 percent after no change in May.  Within the core, the shelter index posted its smallest increase since September.

CPI Consensus Forecast for July 12: +0.2 percent

Range: 0.0 to +0.5 percent

CPI ex food & energy Consensus Forecast for July 12: +0.2 percent

Range: +0.1 to +0.2 percent

The Empire State manufacturing index in July rose more than 5 points to 7.39 to indicate monthly growth in general business conditions. But this was offset by a decline in new orders.  Weakness in orders points to slowing activity ahead for the New York region's manufacturing sector. Unfilled orders also contracted and steeply.

Empire State Manufacturing Survey Consensus Forecast for August 12: 7.00

Range: -2.00 to 9.00

Industrial production rebounded 0.4 percent in June, following a 0.2 percent decline in May.  By major components, manufacturing gained 0.7 percent after falling 0.7 percent in May. Motor vehicles output added significantly to manufacturing, rebounding 1.9 percent in June after a 2.2 percent decline in May. Manufacturing excluding motor vehicles was quite strong also gaining 0.6 percent in June, following a 0.5 percent drop in May.  In June, mining output gained 0.7 percent, following no change the prior month. Utilities output declined 1.9 percent, following a 2.8 percent boost in May.  Overall capacity utilization improved to 78.9 percent from 78.7 percent in May.  Looking ahead, production worker hours gained 0.6 percent in June, suggesting a strong manufacturing component in industrial production.

Industrial production Consensus Forecast for July 12: +0.5 percent

Range: +0.3 to +1.1 percent

Manufacturing production component Consensus Forecast for July 12: +0.5 percent

Range: +0.2 to +0.8 percent

Capacity utilization Consensus Forecast for July 12: 79.2 percent

Range: 79.0 to 79.6 percent

NAHB housing market index surged 6 points in July to 35. The monthly gain was the largest in nearly 10 years while the level, which has been moving higher all year, is now at its highest of the recovery, since March 2007. All regions report gains with strength centered in sales six months out.

NAHB housing market index Consensus Forecast for August 12: 35

Range: 32 to 38

Thursday

Housing starts in June rebounded 6.9 percent after dropping 4.8 percent in May. The June pace of 0.760 million units was up 23.6 percent on a year-ago basis. For the latest month the single-family and multifamily components both gained. Single-family starts increased 4.7 percent after a 2.2 percent in May. The multifamily component—which is volatile—rebounded 12.8 percent, following an 19.3 percent drop in May.  Housing permits have been bumped around recently by volatility in the multifamily component but also appear to be on a modest uptrend. Permits slipped 3.7 percent in June but followed a sharp 8.4 percent surge the prior month. Permits in June posted at an annualized pace of 0.755 million units.

Housing starts Consensus Forecast for July 12: 0.750 million-unit rate

Range: 0.695 million to 0.785 million-unit rate

Housing permits Consensus Forecast for July 12: 0.766 million-unit rate

Range: 0.695 million to 0.805 million-unit rate

Initial jobless claims fell 6,000 in the August 4 week to 361,000 and though the 4-week average, at 368,250, was up 2,250 from the prior week it is still nearly 10,000 lower than the month-ago trend. Prior data were revised to show a 367,000 level in the July 28 week, which was up 2,000 from the initial reading.

Jobless Claims Consensus Forecast for 8/11/12: 365,000

Range: 355,000 to 375,000

The general business conditions index of the Philadelphia Fed's Business Outlook Survey improved to minus 12.9 from June's minus 16.6.  Forward momentum was still not good even though the new orders index rose to minus 6.9 from June's minus 18.8. New orders are declining—just not as rapidly.

Philadelphia Fed survey Consensus Forecast for August 12: -5.0

Range: -16.5 to 0.0

Friday

The Reuter's/University of Michigan's consumer sentiment index was essentially flat in July, which finished the month at 72.3 for a marginal 3 tenth gain from mid-month and a 9 tenths decline from June.  The best news was in the assessment of current conditions where the index was at 82.7 which, though down 5 tenths from mid-month, was up 1.2 points from June. The outlook, however, is deteriorating but only slightly with the expectations index at 65.6 which was up 8 tenths from mid-month but down 2.2 points from June.

Consumer sentiment Consensus Forecast for preliminary August 12: 72.0

Range: 71.0 to 75.5

The Conference Board's index of leading indicators fell 0.3 percent in June after a 0.4 percent boost the prior month. Weighing down on the June number were the new orders index (minus 0.16 percentage contribution), consumer expectations (minus 0.13 percent contribution), building permits (minus 0.10 percentage contribution), jobless claims, stock prices, and new orders for nondefense capital goods excluding aircraft.  On the positive side, the leader continued to be the rate spread between the 10-year Treasury and fed funds rate (0.16 percent contribution). Also slightly positive were the leading credit index, and new orders for consumer goods.  But the economy is still growing, according to the coincident index which rose 0.2 percent in June, matching May's pace.

Leading indicators Consensus Forecast for July 12: +0.2 percent

Range: 0.0 to +0.4 percent

R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009.

Econoday Senior Writer Mark Pender contributed to this article.