NEW YORK – As the summer of discontent over runaway oil prices comes to an end, stock investors will pore over key U.S. economic data, including Friday's August payrolls report and retailers' monthly sales figures, for signs of how big a toll crude's surge has taken on the economy.
With oil hitting a record $68 a barrel this week, the fear on Wall Street (search) is that consumer spending and corporate investment will suffer. When companies and individuals have to devote more of their available cash to pay more for gasoline, electricity and other energy costs, that leaves less to spend on business equipment, clothing or other items.
"With the increased focus on the potential of an economic slowdown, driven by the higher energy prices, anything that comes out of the economic data to either support or refute that is going to be key," said John Caldwell, chief investment strategist at McDonald Financial Group (search), of Cleveland.
School Bells, Factory Whistles
On Thursday, major U.S. retailers will report August sales, providing a gauge of consumer spending during the key back-to-school shopping season.
The same day, August U.S. car and truck sales are due, with economists expecting a decline from July levels. A report on personal consumption also is due on Thursday, with the forecast calling for a gain, according to economists polled by Reuters.
The consumer confidence index for August from the Conference Board (search), a private research group, kicks off the week's economic calendar on Tuesday. The forecast calls for the index to slip to 101.5 from a previous reading of 103.2, according to economists polled by Reuters.
July factory orders, due on Tuesday, are expected to drop, compared with a previous month's gain.
In contrast, the Institute for Supply Management's August index of U.S. manufacturing activity, due on Thursday, is expected to show a slight pickup in pace from July.
If a weaker-than-expected reading comes in on any of these data points, Wall Street could take that as a sign that high oil prices are weighing on the economy.
Jumping Crude, Falling Stocks
Oil's surge to yet another record this week took a toll on the major U.S. stock indexes. On Thursday, U.S. crude jumped to $68 a barrel, the highest price since oil futures started trading on the New York Mercantile Exchange in 1983.
For the week, stocks fell, giving up their mid-summer gains. The blue-chip Dow Jones industrial average finished the week down 1.5 percent, while the broad Standard & Poor's 500 index slipped 1.2 percent, and the tech-laced Nasdaq Composite Index declined 0.7 percent.
"A lot of the short-term action is dependent on oil prices," said Michael Metz, chief investment strategist at Oppenheimer & Co., of New York.
On Friday, though, U.S. oil prices retreated late in the day on expectations that Hurricane Katrina would bypass oil and gas production in the Gulf of Mexico. NYMEX crude for October delivery settled on Friday at $66.13 a barrel, down $1.36.
If Oil Eases ...
A drop in oil prices from their current peak would likely drive stocks higher in the week ahead, strategists said. They also noted volume is likely to be light in the coming week, with many traders trying to squeeze in final vacation days.
"My guess is we've seen a little bit of a blow-off on oil and it's going to be a little bit more of a hospitable climate, as far as oil prices are concerned," Metz said.
Nabi cited a historical trend as a reason to expect oil prices to ease.
"I go back to late 1979 and 1980, at the point when oil had the last spike in price," said Stanley Nabi, vice chairman of Silvercrest Asset Management in New York. "Oil stocks ignored that spike. That's exactly what they are doing right now ... This is an indication that maybe we are going to have a peak here in oil prices."
The American Stock Exchange index of energy companies, which usually rises with oil prices, has fallen 5 percent in the last two weeks as crude has hit new highs.
Still, if oil prices continue their rally, it could signal trouble for equities.
"If we saw them continually ratcheting higher, that would be a negative for stocks," McDonald Financial Group's Caldwell said. "Investors do feel that energy prices matter."
Job Growth Cuts Both Ways
On Friday, the Labor Department's employment report is expected to show that U.S. nonfarm payrolls added 190,000 jobs in August, according to economists polled by Reuters. In July, the economy added 207,000 nonfarm jobs.
"I think the data will be supportive of good, solid employment figures," Nabi said.
But he warned that positive numbers can be interpreted in different ways.
"Employment will be solid. Then the naysayers will say that also means that the Fed is going to have its marching orders from the employment data to further raise interest rates."
The data will dominate the week's agenda, with the wave of quarterly earnings reports from U.S. companies near its end. Only four S&P 500 components due to report next week, including jeweler Tiffany & Co. (TIF) and tax preparer H&R Block Inc. (HRB)
So far, 402 of the 482 S&P 500 companies that have reported earnings have met or beaten analysts' forecasts, with the group as a whole running 4.3 percent ahead of consensus estimates, according to Reuters Estimates.