The surprisingly weak reports this morning on the U.S. labor
market and consumer spending run counter to the recent run of
favorable economic data. It is difficult to tell whether this
morning's disappointing readings reflect one-off seasonal
distortions or the start of a trend reversal. The latter seems
unlikely given the absence of any corroborating evidence in other
reports. If anything, all other readings of the U.S. economy are
pointing towards continued positive momentum.
Beyond U.S. shores, we have subdued inflation numbers out of
China. And the European Central Bank (ECB) acted as expected by
leaving interest rates unchanged. We also have successful bond
auctions in Italy and Spain this morning that are pushing their
bond yields in the right direction.
The major news of the day pertains to the soft economic readings
on the Retail Sales and Jobless Claims fronts. The December Retail
Sales numbers came in weaker than expected, up 0.1% compared to
expectations of 0.3% gains. This compares to the November gain of
0.4%, which was revised upwards from the originally reported 0.2%
level. 'Core' Retail Sales, which excludes automobile and gasoline
sales data, also came in weaker than expected.
This is the weakest Retail Sales reading since May 2011 and runs
counter to the recent trend of improving trends in the building
blocks of consumer spending. Measures of consumer confidence have
been moving up and the labor market has been steadily moving in the
right direction, notwithstanding the jump in today's jobless claims
The Retail Sales report is admittedly not a perfect proxy for
consumer spending since it only includes 'goods' sales at retail
establishments and leaves out the much bigger consumer outlays on
'services'. But it nevertheless provides valuable clues to trend in
consumer spending, which is the backbone of the U.S. economy.
Momentum on the consumer spending front can be sustained only if
the recent improving trend on the labor market front remains in
place. This morning's Jobless Claims report runs counter to that
trend, though it is not unusual to see one-off seasonal distortions
in this series. We got a major jump in initial Jobless Claims this
morning, up 24K to 399K. The four-week average increased by 7.8K
381.8K. This report reverses the gains of the last many weeks and
takes us perilously close to the 400K level.
On the earnings preannouncements front, we got positive guidance
Tractor Supply Compan
), while Chevron (
) guided lower. PVH Corp (
) provided positive outlook for the fourth quarter given strength
in its Calvin Klein and Tommy Hilfiger brands, but provided a
modestly disappointing outlook for 2012 by pushing the gains the
second half of the year.
Today's Retail Sales report, coupled with the trend reversal in
the jobless claims data, is disappointing. We have to see whether
this is the start of a downtrend in U.S. economic readings or the
typical erratic behavior of monthly economic data.
Today's economic releases include
which is expected today at 10:00 AM EST, and is expected to
increase by 0.4% and the
which is scheduled for release today at 2:00 PM EST.
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