The market didn’t get any help from the day’s economic data as jobless claims remain very elevated, same-store retail sales fell 2.1% for March and the trade figures showed consumer activity remained subdued as U.S. imports fell for a seventh-straight month in February.
However, Wells Fargo pre-announced that profit would easily surpass expectations, fueling a 15.5% rise in financial shares and a 24% jump in bank stocks, in particular. We should see more of this to come. As we mentioned earlier in the week, rising interest margins will help bank results this quarter – borrow near zero and lend at 5-6%. Mortgage originations also helped Wells during the quarter; they dominate California, which has seen bargain hunting increase over the past couple of months due to a 40% average decline in home prices in the state – refinancing activity nearly doubled last quarter thanks to ultra-low mortgage rates.
Investor optimism returned after a couple of days in which doubt had set in (positive comments on the economy yesterday from WH chief economic adviser Larry Summers and Fed official Gary Stern helped that sentiment turn), helped propel industrial and basic material stocks. Energy names in general under-performed, but the sub-sector energy equipment & services shares rose in line with the overall market.
Consumer staples and utilities, the typical safe-havens, were the only sectors that failed to close on the plus side.
Market Activity for April 9, 2009
Latest Retail Sales Data
The same-store retail sales figures (when you read same-store sales it refers to the year-over-year change) were not very good for March, which follows with my assumption that the March retail sales report will decline. We’ll note, however, that Easter fell in March last year, so this does have on effect on comparisons – we’ll likely see some make-up in the April data.
The International Council of Shopping Centers’ (ICSC) index fell 2.1% for March based on the year-ago period – a 0.8% decline was expected. Four of the six segments of the index showed a decline, the drug and wholesale clubs ex-fuel components were the two in the black.
The luxury segment led the declined for the seventh-straight month, down 20.3%; department-store sales fell 10.9%; apparel sales declined 8.4%; discount-store sales slipped 0.6% wholesale club sales fell 2.3% (again, when you exclude fuel sales from this segment’s sales rose, up 4.6%); drug-store sales rose 0.9%.
Jobless Claims
Initial jobless claims fell 20,000 to 654,000 for the week ended April 4 – the previous week’s reading was revised higher by 5,000 for what it’s worth. Initial claims have exceeded the 600K level for 10-straight weeks. The four-week average was effectively unchanged, falling less than 1,000 to 657,250.
Continuing claims rose another 95,000 to a new record of 5.84 million in the week ended March 27 (continuing claims lag initial by one week, that’s not a typo). The insured unemployment rate, which is tied to the continuing claims data and closely tracks the direction of the overall unemployment rate increased to 4.4% from 4.3%, and remains at a 26-year high. This insured jobless figure give us an indication the overall unemployment rate will move higher from the 8.5% posted as of the March employment report). We’ll get a better look next week as that’s the week that corresponds to the April jobs survey.
Bottom line is we’ll need to see the initial claims figure trend back to the 500K level. The overall unemployment rate is a lagging indicator, meaning it will continue to rise even as the economy rebounds, but initial claims is one of the most reliable real-time indicators we have. Until this trend to 500K begins, we should not expect much regarding the degree of an economic bounce. As most readers know, the ISM numbers are key to watch also as these are the other real-time indicators -- ISM manufacturing will need to hit the 40 handle (last reading was 36.3) and ISM service-sector will need to improve (it has dropped the past two months).
Import Prices
The Labor Department reported import prices rose for the first time in seven months as the petroleum products component jumped 10.5% in March, coming off of previously depressed levels.
Most other components continued to decline as a stronger dollar and weak demand kept prices down. The fuels component (which excludes petro and involves just coal and natural gas prices) continues to fall at massive rates – the price of imported coal fell 14% and natural gas was down 15.8% last month, according to the report. But those segments aren’t that meaningful as we don’t import much of these products. Paper and metals prices were the main reasons for the year-over-year decline. These two segments fell 2.4% and 1.8%, respectively for the month and their 12-month declines accelerated based on the prior months figures.
Trade Balance
The Commerce Department reported the U.S. trade deficit narrowed for the seventh–straight month to the lowest level in nine years. The gap shrank 28%, the largest decline since October 1996, to $26 billion in February from $36.2 billion in January.
Imports fell 5.1% in February, down 28.8% over the past 12 months, as both consumers and businesses pull-back. On the business side, capital goods (down 6%) and industrial supplies (down 9.3%) led the decline in import activity. On the consumer front, apparel imports slipped 6.5%, automotive was down 8.2% and food and beverage down 2.0%.
Exports did rise, up 1.6% for the month -- the first increase in six months. Consumer goods, semiconductors and telecom equipment drove exports higher.
By country, U.S. exports to Australia jumped 16.4%; export to China were up 12%; exports to Europe rose 6%; Canada up 5.9%; and to OPEC countries up 10%.
While it is nice to see the export data show an increase, the import side of the report illustrates that consumer and business spending remains in the tank. We’ll want to see imports trend higher (that is, we’ll want to see a multi-month increase), which will be another indication that the economy is on the rebound.
Have a great weekend and a Happy Easter and Passover!
Brent Vondera, Senior Analyst
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