Q2 Rebound Not That Strong - Ahead of Wall Street
Thursday, June 12, 2014
The weaker than expected retail sales reading provides a soft backdrop for today's trading action, likely making it difficult for the market to reverse the Wednesday pullback. Stocks have made strong gains lately, with the broad indexes in record territory, leaving them vulnerable to any negative news flow in this seasonally weak period.
The soft Retail Sales read this morning follows the weak report last month as well. This runs counter to the broadly improving trend in economic data that has been pointing towards the U.S. economy shaking off the forces that held it down in the first quarter of the year. Retail Sales are important as they serve as a proxy for the all-important consumer spending component of the economy, even though it isn't a perfect proxy as the report tracks nominal (or non inflation adjusted) sale of merchandise at the retail and food service establishments. In other words, this report measures the durables and non-durables components of consumer spending.
Today's report was expected to clarify the picture and assure us of a May rebound on the merchandize and durables side, but we didn't see that. The saving grace of today's report is that the April numbers were modestly revised higher. That said, this report will have some dampening effect on GDP growth estimates for the current period. Stepping back from this and other recent data releases, it is obvious that the U.S. economy has bounced back in Q2, but the magnitude of the rebound may not be as strong as many had expected. As we saw in today's report, weather may not have been the only restraint in Q1. We are seeing this in housing, business capital spending and other economic data. This means that we should be skeptical of hopes of above-trend growth going forward.
Director of Research
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