@ Wall Street
The top business story of the week until Friday morning was the behind-closed-doors negotiations over the debt ceiling. And then the employment report came out. The report was a shocker, far worse than expected, and weak on all key dimensions job creation, unemployment, the length of the workweek, and hourly earnings.
It suggests that the economy hit a brick wall in May. And it cannot be easily dismissed because it is based on two independent surveys (payrolls and households), both telling similar stories but from different angles.
For policymakers, the report´s implications are clear. The Fed should be reviewing the quantitative easing playbook to ensure that plans are ready for a third round.
For the federal government, the prime objective should be to avoid adding any self-inflicted wounds to the economy's existing problems. A plan to stabilize the ratio of public debt to GDP over the long term is badly needed; an immediate fiscal contraction is not. More rather than less stimulus is what is needed now.
The releases in the upcoming week will give us our first solid readings on inflation and consumer spending for June, a rough estimate of how much foreign trade propped up the economy in the second quarter, and another reading on the manufacturing sector.
The consumer and the producer price index reports are expected to show overall prices dropping in June because of declining energy prices, and core PPI and CPI inflation both at a subdued 0.2% rate.
The trade report should show the trade deficit widening in May, with export volumes declining after two very strong months. Retail sales are expected to fall for the second month in a row in June on declining sales at automobile dealerships (bad news) and gasoline stations (lower gasoline prices, good news). Finally, a modest and partial rebound in motor vehicle production should boost industrial production in June.
@ The White House
On Saturday, the President will travel to Camp David. On Sunday, the President will return to the White House.
Later on Sunday, the President and the Vice President will meet with Congressional Leadership in the Cabinet Room to discuss the ongoing efforts to find a balanced approach to deficit reduction.
