This morning's weaker than expected Retail Sales data provides
further evidence of negative momentum in the economy. The reading
will likely keep the market's hopes of additional Fed support alive
and will further enhance the spotlight on Bernanke's Senate
testimony on Tuesday. Partly offsetting the negative Retail Sales
report is the modestly positive Empire State manufacturing survey
for July and the better than expected earnings report from
The June Retails Sales report showed the third consecutive
monthly decline in this key measure of consumer spending. The
measure was weaker still after excluding automobile and gasoline
sales, which can cause unusual swings in this non inflation
adjusted measure of consumer spending. The Retail Sales report is
admittedly not a perfect proxy for 'real' consumer spending since
this non-inflation adjusted measure only includes 'goods' sales at
retail establishments and leaves out the much larger consumer
outlays on 'services'.
The anemic jobs growth of the last few months is likely a
contributor to this soft spending pattern, but the hope was the
recent drop in gasoline prices (which showed up in the 'headline'
decline in today's data) will help spur spending elsewhere. Many
expect the Fed to play its part by announcing additional support in
next month's FOMC meeting and will be looking for signs of that in
Bernanke's Senate testimony tomorrow.
We are also getting into the thick of the second quarter
earnings season, with almost a fifth of the S&P 500 companies
reporting results this week. The positive earnings report from
Citigroup this morning and
J.P. Morgan (
) on Friday aside, the early reports have set a downbeat tone for
this earnings season. Total earnings for the 32 companies that have
reported results already are flat from the year-earlier period,
with a median surprise of a very weak 1.1%. These same companies
did much better in the first quarter, with earnings growth of 4.9%
and a median surprise of 3.6%. But given the small number of
reports thus far, it's perhaps a bit too early to write-off this
earnings season at this stage. With reports from almost a quarter
of all S&P 500 companies by the end of this week, we will have
a good enough sample size to judge the quality of the second
quarter earnings season.
are scheduled for release today at 10:00 AM EST and are expected to
increase by 0.2% after increasing by 0.4% in April.
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