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It was a mostly good week for economic news, and equities ended the week with nice gains even though more traders are concluding that the Fed will do nothing at its September FOMC meeting. Decent earnings added to the equity lift.
 For the week, major indexes posted nice gains—especially techs and small caps. But on Monday the week started in the other direction after a disappointing reading on Japanese GDP growth added to concerns about the global economy. Tuesday, stocks were flat to down despite a stronger-than-expected retail sales report for July and growth beating estimates for German and French GDP. Equities were up initially but slipped late in trading as focus returned to slowing growth and recession in parts of Europe and to softer growth in China.
At mid-week, most major index gained with the Dow being an exception. Economic news was mixed with industrial production and the NAHB housing market index topping expectations. An offset was a decline in the Empire State manufacturing index.
Biggest lift came Thursday from a variety of sources. A disappointing Philly Fed report was more than offset by a sharp July gain in housing permits (starts holding steady after a strong June) and initial jobless claims posting lower than expected. Cisco boosted techs after beating estimates. And German Chancellor Angela Merkel appeared to back the European Central Bank's efforts to fight the Eurozone crisis. The final day of trading was positive with shares led higher by an unexpectedly strong gain in the index of leading indicators and by consumer sentiment rising more than forecast.
Equities were up this past week with the Dow posting a sixth straight week of gains. The Dow was up 0.5 percent; the S&P 500, up 0.9 percent; the Nasdaq, up 1.8 percent; the Russell 2000, up 2.3 percent; and the Wilshire 5000, up 2.3 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 8.7 percent; the S&P 500, up 12.8 percent; the Nasdaq, up 18.1 percent; the Russell 2000, up 10.7 percent; and the Wilshire 5000, up 12.2 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields were up notably this past week except on the short end. After a flat Monday, rates rose Tuesday on strong retail sales along with GDP reports from Europe topping expectations. Despite a soft CPI, yields rose Wednesday on strong industrial production and on comments from European leaders being supportive of more stimulus if needed. Yields gained further on Thursday with the 30-year rate hitting a 3-month high. Favorable reports on housing starts and initial jobless claims led to flow of funds from Treasuries into equities.
At week’s close, rates fell back even on improved readings for consumer sentiment and leading indicators as investors appear to have decided that the higher rates/lower prices are attractive.
Rates have been on an uptrend for four weeks with Treasury rates this past week up as follows: the 2-year note, up 3 basis points; the 5-year note, up 9 basis points; the 7-year note, up 14 basis points; the 10-year note, up 15 basis points; and the 30-year bond, up 18 basis points. The 3-month T-bill eased 2 basis points.
 The spot price of crude posted steady gains all week. West Texas Intermediate nudged up Monday on little economic news. Tuesday saw a modest rise on strong retail sales and better-than-expected economic growth in Europe. Supporting a gain at mid-week of almost a dollar a barrel was a worse-than-expected drop in government reported oil inventories. Economic indicator news also was mostly favorable for the day.
 Thursday got lift from a jump in housing permits, suggesting that the economy is not as soft as feared. Positive indicator news on sentiment and leading indicators bumped up WTI by well over a dollar a barrel.
Net for the week, the spot price for West Texas Intermediate jumped $3.71 per barrel to settle at $96.01.
The Fed may have to rethink its view that lower oil prices will be bringing down consumer price inflation. Crude now has been on the rebound since early July.
The news this past week was mostly positive, notably with improvement in the consumer and housing sectors. Manufacturing news was mixed. And inflation indicators also were mixed with consumer prices soft but producer prices warming up.
 Retail sales were knocked down in April, May, and June but sales got up from the mat with gains in July. Major gains swept the retail sales report for July, but part of the story is that July growth numbers benefitted from an easy comparison with a very weak June. Total retail sales rose 0.8 percent for the strongest rise since February with ex-auto sales also up 0.8 percent for, again, the best showing since February. Ex-auto ex-gas, the gain is 0.9 percent for the best showing since January.
All major components showed gains including motor vehicles, general merchandise, health & personal care, furniture, and restaurants. Clothing also shows a significant gain, one that points to strength for the back-to-school season.
The July figure hints at the possibility of a decent personal consumption expenditures component in third quarter GDP but it is the quarterly average that matters and sales have a way to go to add to GDP growth. The July level of sales is still below the March level.
 The consumer is feeling better about the economy despite the recent run up in gasoline prices and apparently it is due to a somewhat improved jobs picture.
The composite index in the mid-August reading rose 1.3 points from final July to 73.6. Strength was in the consumer's assessment of current conditions which was up solidly at 87.6 versus July's 82.7. This gain underscores the improvement seen in weekly jobless claims.
 However, the consumer's view of the future economy is not improving. The expectations index fell 1.1 points to 64.5 from 65.6 in July. This could be due to worries about the pending fiscal cliff and the possibility of higher income and payroll taxes. Or it could be that the current economy has improved, meaning that the baseline for expectations is higher and not much progress is expected relative to the higher baseline.
Food price inflation is a big news story right now even though it has yet to hit the supermarkets based on this past week’s CPI report. But consumers are already pricing it in based on 1-year inflation expectations which are up a very big 6 tenths to 3.6 percent. Another factor at play also may be the rise in oil back to over $90. Expectations for the 5-year outlook are also higher, up 3 tenths to 3.0 percent.
 It is still gradual and from sluggish levels, but it is increasingly apparent that a housing recovery has gained traction. Housing starts in July eased 1.1 percent but followed a 6.8 percent rebound the month before. After a strong June, the minor slippage in July looks good relative to what it might have been. The July pace of 0.746 million units posted slightly lower than the market expectation for 0.750 million and was up 21.5 percent on a year-ago basis.
 In July, the dip was led by the single-family component which decreased 6.5 percent after a 4.7 percent rise in June. The multifamily component, however, increased 12.4 percent, coincidentally matching the gain in June.
There is good forward looking news. Housing permits show moderate upward momentum. Housing permits rebounded 6.8 percent in July after a 3.1 percent decline in June. The July rate of 0.812 million units was up 29.5 percent on a year-ago basis. Permit strength was led by multifamily but single-family also improved. During most of the recovery, the multifamily component has led the way but now the single-family component is showing a modest uptrend.
And there are additional signs of further improvement ahead. Home builders continue to report significant improvement in activity with the housing market index in August rising another 2 points to 37. This was the fourth straight month of significant improvement that puts the index at its best level since early 2007. Current sales and traffic showed the strongest gains of the report's three components.
 Some manufacturing surveys have been pointing to a weakening industrial sector but that was not the case in the latest industrial production report. Overall industrial production jumped 0.6 percent in July after a 0.1 percent rise in June (originally up 0.4 percent). Expectations were for a 0.5 percent boost. While June was revised down, May was revised up to a 0.1 percent gain versus the prior estimate of a 0.2 percent decline. Revisions were offsetting.
 By major components, manufacturing advanced 0.5 percent, following an increase of 0.5 percent in June (previously estimated at up 0.7 percent). Motor vehicles production supported the manufacturing gain, increasing 3.3 percent in July, following a 1.9 percent rebound in June. Manufacturing excluding motor vehicles posted a 0.2 percent rise, following a 0.4 percent boost the prior month.
In July, mining output advanced 1.2 percent, following a 0.5 percent increase in June. Utilities output rebounded 1.3 percent after declining 3.3 percent the prior month. Overall capacity utilization rose to 79.3 percent from 78.9 percent in June.
The manufacturing sector looked good in July and June. However, this past week’s releases of the Empire State and Philly Fed reports for August were negative. This raises questions about forward momentum although these data are not always reflective of national output.
The Empire State composite index  fell a sharp 13.24 points to minus 5.85 in August from July's plus 7.39. The negative reading for August indicates monthly contraction in general business conditions. This was the first negative figure since minus 7.22 for October 2011.
The new orders index’s rate of contraction worsened somewhat, slipping to minus 5.50 from minus 2.69 in July. Unfilled orders were not pretty, posting at minus 10.59 versus minus 13.58 the prior month. Unfilled orders have been contracting for a number of months.
 An easing rate of contraction is about the best that can be said for the Mid-Atlantic manufacturing sector based on the Philly Fed's general business activity index which improved to minus 7.1 for its August reading versus minus 12.9 in July. A minus reading indicates monthly contraction and, in this case, a less severe pace than the monthly contraction in July.
New orders also showed improvement but remained in negative territory, rising to minus 5.5 from July's minus 6.9. This was the best reading since May when new orders first began to contract. Not showing improvement however were backlog orders where contraction is deepening, to minus 16.2 compared to minus 9.5 in July.
The latest manufacturing survey point to a sluggish industrial sector in the near term—although the national numbers could turn out differently.
 Consumer prices in July came in softer than expected at both the headline and core levels. The consumer price index was flat, following no change in June. Excluding food and energy, the CPI increased a modest 0.1 percent, following a 0.2 percent gain in June. Headline softness primarily got help from the energy component.
By major components, energy fell 0.3 percent in July after declining 1.4 percent the month before. Gasoline actually rose 0.3 percent, following a 2.0 percent decrease in June. Declines were seen in electricity, piped gas, and heating oil. Food prices edged up 0.1 percent after gaining 0.2 percent in June.
The core rise of 0.1 percent in July ended a streak of four consecutive 0.2 percent increases. Deceleration was largely due to declines in costs for airfare, used cars & trucks, new vehicles, and transportation services. Also, apparel and medical care inflation slowed.
Year-on-year, overall CPI inflation held steady at 1.7 percent in June (seasonally adjusted). The core rate nudged down to 2.2 percent from at 2.3 in May percent on a year-ago basis.
Consumer price inflation was soft in July but that may change soon. Early indications are that prices will not be so soft in August due to food and energy gains. Oil prices have risen notably in recent weeks and food prices are rising at a faster pace earlier in the production chain.
 Food inflation is helping to drive up producer prices. The headline PPI rose a sizable 0.3 percent in July after a 0.1 percent rise in June and 1.0 percent decline in May.
Food prices at the producer level rose 0.5 percent for a second straight month. Over half of the July increase can be traced to prices for beef and veal, which climbed 3.8 percent. Higher prices for pork also contributed significantly to the advance in the finished foods index. These have been affected by higher feed prices (corn) due to short supply created by drought conditions in the corn belt. Corn prices jumped 35 percent for the largest monthly gain in nearly 6 years.
Energy prices in July headed the other way for now, down 0.4 percent in the month to extend a run of declines that goes back to March.
 But more than just food prices boosted the PPI for July. The core rate, which excludes both food and energy, rose 0.4 percent after a 0.2 percent increase in June. The latest reading is the steepest rise since January. Vehicles showed a steep increase as did tobacco and pharmaceuticals.
The year-on-year rate for the core was plus 2.5 percent which is on the high side for the inflation hawks but is still trending lower, in fact is the lowest reading since May last year. Year-on-year, the total PPI is up only 0.5 percent which is the lowest reading since October 2009.
More likely, food and energy look to boost the PPI's inflation rate in the near term due to higher grain costs and higher oil prices.
 There are signs that the recovery may be gaining a little more strength—emphasis on little, however. The July index of leading economic indicators rebounded 0.4 percent, offsetting the June decline of 0.4 percent.
Improvement in jobless claims, which points to improvement in underlying job growth, together with improvement in building permits led the increase in the overall index with each component having a contribution of 0.18 percentage points.
Also with positive contributions were the report's credit reading, the stock market, and the report's imputed readings for new orders on both consumer and capital goods which are government data that have yet to be released. In a rare showing, the rate spread, though a positive contributor, is back in the pack a bit which reflects the very low levels of long Treasury rates (low rates imply low borrowing demand).
One glaring negative was the actual new orders reading from the ISM's manufacturing report which has been signaling monthly contraction for two months running. Another negative was consumer expectations but the outlook for this reading for August, at least based on the mid-August gain for consumer sentiment, is positive. The manufacturing workweek was neutral.
Also positive is the report's coincident index where momentum is picking up again with a 0.3 percent gain versus June's 0.2 percent gain. The coincident index was led by the manufacturing & trade sales component. The employment, personal income, and industrial production components also were positive.
Both the leading and coincident indexes suggest mild improvement in the recovery.
The recovery is gaining strength, albeit slowly. Housing finally is rising out of its recession rut and is on a modest uptrend. The consumer sector may not be retreating as feared. However, manufacturing data have been unclear—this sector may or may not be flattening in the near term. But overall, the economy is doing somewhat better—although that fiscal cliff is still looming.
Housing permits were up in July. Reports on existing and on new homes will indicate if homebuilder optimism is justified. Manufacturing reports have been mixed and the July durables report may add clarity. Notably, the mid-week release of Fed FOMC minutes could lift or dampen belief in a Fed move at its September FOMC meeting.
Existing home sales fell a surprising 5.4 percent in June to a 4.37 million annual rate which was the lowest of the year. Declines appeared for both single-family homes and condos and declines swept all regions. But prices were higher, at least the median for this series which is up a strong 5.0 percent from May for a year-on-year plus 7.9 percent. The median price, at $189,400, was the highest in 2 years. June's weak sales total raised supply on the market to 6.6 months at the current sales rate from 6.4 months.
Existing home sales Consensus Forecast for July 12: 4.50 million-unit rate
Range: 4.30 to 4.65 million-unit rate
The Minutes of the July 31-August 1 FOMC meeting are scheduled for release at 2:00 p.m. ET. Traders continue to debate whether the Fed will enact some additional easing program at the September 12-13 meeting. The latest minutes will be parsed for clues on which way the Fed is leaning.
Initial jobless claims edged up 2,000 in the August 11 week, but the 366,000 level compared well with levels in July. The 4-week average is down a sizable 5,500 to 363,750 which is the second lowest level of the recovery, next only to 363,000 back in March. This average was in the mid-370,000 range through most of July which, compared with the current average, points to improvement for the August employment report.
Jobless Claims Consensus Forecast for 8/18/12: 365,000
Range: 360,000 to 373,000
The Markit PMI manufacturing flash index posted at 51.8 for July but was nudged down in the final report for the month to 51.4. The June reading came in at 52.9. Based on the final report for July, growth in new orders was minimal at best, at 51.0 versus 51.9 for the July flash reading and 53.7 for June. This is one of the lowest new order rates of the recovery.
Markit PMI manufacturing flash index Consensus Forecast for August 12: 51.0
Range: 50.0 to 51.9
New home sales dropped 8.4 percent in June, but followed gains of 6.7 percent in May and 1.7 percent in April. June's decline to an annual sales rate of 350,000 was offset in part by a 13,000 upward revision to May to 382,000 which was the highest rate in more than 2 years when government programs were stimulating sales. Further offsetting the June disappointment was a 15,000 upward revision to April, now at 358,000. The dip in June sales gave a lift to the supply reading which still, at 4.9 months at the current sales rate, is very tight which is a factor that is limiting sales.
New home sales Consensus Forecast for July 12: 362 thousand-unit annual rate
Range: 340 thousand to 400 thousand-unit annual rate
The FHFA purchase only house price index in May increased 0.8 percent, following a 0.7 percent boost in April. June’s figure was the fourth increase in a row. The year-on-year rate was up 3.7 percent, compared to up 3.0 percent in April.
FHFA purchase only house price index Consensus Forecast for June 12: +0.6 percent
Range: +0.3 to +0.7 percent
Durable goods orders jumped 1.3 percent in June after rebounding 1.5 percent in May. Overall orders were mostly boosted by transportation which spiked 8.0 percent in June, following a 3.6 percent increase the prior month. Both nondefense and defense aircraft orders rose sharply while motor vehicles edged down. Excluding transportation, durables orders fell 1.4 percent following a 0.7 percent gain in May. Outside of transportation, weakness was widespread in June though following a notable gain in May.
Numbers reflect revisions from the more recent total factory orders report.
New orders for durable goods Consensus Forecast for July 12: +1.9 percent
Range: -1.0 percent to +7.0 percent
New orders for durable goods, ex-trans., Consensus Forecast for July 12: +0.4 percent
Range: -0.8 percent to +1.0 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.
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