3 Numbers To Watch: China GDP, US Retail Sales, NY Fed Index

The first official look at China's Q2 GDP data, which is expected to weaken, will set the tone for the trading day and beyond. Later, US retail sales are expected to post another gain, although the NY Fed Manufacturing survey is projected to soften, raising questions about the outlook for this sector in the US.

China GDP (02:00 GMT): Today’s second-quarter GDP report for the world’s second-largest economy is expected to show slower growth. Analysts think that the 7.7 percent year-over-year rise in Q1 will slip to 7.5 percent in Q2, according to the consensus forecast. That's still impressive from a US and European perspective, but a 7.5 percent increase would rank as the slowest pace in more than two decades for China.

By some accounts, the deceleration is a sacrifice on the altar of economic reform, including tighter credit conditions. The primary goal is shifting the economy away from a heavy reliance on investment and focusing more on developing internal consumption. So-called structural adjustment is increasingly seen as a priority for China, but economists warn that the transition will probably come at a price of slower growth in the near term. “The chances for China to achieve both structural economic reform and a smooth growth trajectory—to have its cake and eat it too, in the manner to which it has become accustomed—are now much reduced,” the Beijing-based economic consultancy GK Dragonomics advised late last month in a research note, Bloomberg reports.

Whatever the reason behind today's slowdown in growth, it’s been clear for some time that China’s economy has been decelerating recently. An unexpected fall in exports in June is one clue. Others include the downtrend of late in the purchasing managers indices for the services and manufacturing sectors. The markets to some extent have already priced in softer growth for China. But if today’s GDP data comes in lower than expected, assumptions about the second half for the global economy will face a new round of re-evaluation.

US Retail Sales (12:30 GMT): Economists think that today’s retail spending for June will deliver another round of growth. The consensus forecast anticipates a robust 0.8 percent increase, which would be the biggest monthly gain since February’s 1.1 percent pop. My econometric modeling also projects a gain, although not nearly as strong.

In any case, today’s retail data is likely to tell us that the consumer is still willing and able to spend. That’s been the message lately in sentiment readings. Last week’s update on the Bloomberg Consumer Comfort Index, for instance, hit another five-year high. Meanwhile, US chain-store sales posted an annual gain of 3.9 percent last month, the strongest rise since January, according to the International Council of Shopping Centers. In other words, a decent report in today’s retail sales news looks like a high probability event. In that case, a key pillar of the US economy—retail consumption—still looks encouraging.

US Empire State Manufacturing Survey (12:30 GMT): Today’s report from the NY Fed offers another early look at how the June data is shaping up for manufacturing. Although this number reflects one corner of national activity, the NY Fed index has done a reasonable job of tracking the big-picture trend lately, as defined by the widely followed ISM Manufacturing Index. Accordingly, if today’s number holds steady or moves higher, we’ll have another data point for anticipating that the ISM Manufacturing release for July will bring encouraging news.

By that standard, however, analysts think we may be in for a bit of turbulence. The consensus forecast sees a pullback to 5.0 in the General Business Conditions Index for July versus the previously reported 7.84 for June. For additional perspective, keep an eye on the sub-indices in this report, including the new orders component. In last month’s update, new orders slipped for the second month in a row, which suggests that this index generally is headed for a soft patch.