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Soft U.S. retail sales, manufacturing seen

WASHINGTON (MarketWatch) -- Summer doldrums for the U.S. economy are likely to remain evident in this week's economic data with a mediocre increase in retail spending and further signs of softening in the manufacturing sector.

"The data this week will be consistent with slower growth, "said Neil Dutta, head of U.S. economics at Renaissance Macro Research. "We are in a fundamentally low-growth environment."

Housing could be a tiny bright spot, however.

The week kicks off with Monday's release of U.S. retail spending in June. Economists surveyed by MarketWatch expect spending rose a modest 0.2% last month, propelled by solid auto sales.

Take autos out of the equation, however, and spending was probably flat based on already released chain-store sales. That's not welcome news for an economy that relies on consumer spending to drive growth. Consumers account for about 70% of U.S. economic activity.

Still, there's little reason to believe consumers will sharply curtail spending based on recent patterns, economists say. The U.S. is still adding jobs, though very slowly, and falling gas prices will put more cash in the pockets of consumers.

Indeed, a silver lining in the retail report is that the modest rise in spending will almost certainly reflect less money spent at gas stations.

"I think we will see consumers be more cautious, but not pack in," said Ryan Sweet, an economist at Moody's Analytics.

Investors will get another snapshot of the manufacturing sector with the Empire State and Philadelphia Federal Reserve surveys of regional manufacturers. These indexes are expected to improve slightly from low levels, but show a sector that's cooled off from last year's strong pace.

"There are more broad-based signs of weakness in manufacturing," said economist Andrew Grantham of CIBC World Markets. Slower growth in China, Europe and developing markets are making it harder for U.S. companies to sell goods and services overseas, he said.

Still, economists point out that the regional surveys sometimes exaggerate weakness in manufacturing. That's what happened last summer in what turned out to be a false alarm.

The housing sector, on the other hand, is one of the few segments of the economy that still appears to be on an upswing. Sales of existing homes are perking up and builders have started work on more homes.

Economists say the recovery in the housing market is likely to continue -- barring an outright recession -- because it's coming off record lows in the modern era. Ultra-low interest rates are also helping.

"Housing is continuing to crawl its way back," Sweet said. "I don't think it will contribute much to growth this year, but it's no longer a big drag."

Existing home sales are project to rise to an annual rate of 4.60 million in June from 4.55 million in the prior month. The start of construction on new homes is forecast to climb to 758,000 from 708,000 in May, which would mark the highest rate since the fall of 2008.

Economic data aside, Wall Street will listen for hints on Wednesday as to whether Fed Chair Ben Bernanke is prepared to take additional steps to try to boost U.S. growth. He will appear before Congress to give his outlook on the economy.

Most analysts think Bernanke will reveal little new information. He's already said the economy should expand at around 2% in 2012, a rate that's too slow to dramatically lower the nation's 8.2% unemployment rate. He would need to see signs of even slower growth before he acts, economists say.

"Does Ben Bernanke signify a policy shift next week?" Dutta asked. "I don't think so."