Stocks began the session higher on news that Chinese auto sales surged 48% in June, another sign the country’s stimulus program has kicked overall economic activity higher (Chinese manufacturing has been in expansion mode for four months now). This has helped calm some concerns regarding global growth as the activity should help the entire Pacific Rim and may very well boost U.S. export activity, at least in the short term. By the end of the session, however, some of that momentum eased as the S&P 500 ended at about half of its intraday highpoint.
Basic material and energy stocks recouped some of the losses recorded over the prior four sessions, surely a result of that news out of China, and the financial sector was the best performer on the day after an analyst upgrade of Goldman Sachs pushed those shares higher.
Our own economic data releases offered little help as the latest look at same-store retail sales posted another big decline and continuing claims for unemployment benefits made a new high.
And speaking of jobless claims, I wouldn’t be surprised to see a boost in the duration of jobless benefits, again. Heck, many states have already extended benefits out to 46 weeks. Why not make it a full year? This is nuts and does nothing for future growth. Look, I know the whole countercyclical argument but enough is enough, this spending is going to end up weighing on the economy whenever it is a bounce does occur as Congress will jack up tax rates to pay for all of this.
Volume was weak with just 962 million shares traded on the NYSE Composite. Advancers just barely edged out decliners by a margin of nine-to-eight.
Market Activity for July 9, 2009
Jobless ClaimsThe Labor Department reported that initial jobless claims fell a large 52,000 in the week ended July 4 (keep that holiday in mind) to 565,000 from 617,000 in the week prior. This is the first move below the 600K level since January – a move we’ve been waiting for as evidence the labor market will markedly improve in the near future.
One only wishes it would have occurred during a full week – last week unemployment offices were open just four days due to the holiday as government offices were closed on Friday July 3. The seasonal adjustment on claims was also distorted due to the auto plant closings that occurred last month as a result of the bankruptcy filings of GM and Chrysler. Auto plants generally shut down in early July in order to retool for new models, but the claims that typically result were shifted to June due to auto-industry woes; this had an effect on the number, according to the Labor Department.
The four-week average of initial claims fell 10,000 to 606,000.
As evidence that the move in initial claims was due more to the holiday-shortened week and other distortions than an improvement within the labor market, continuing claims jumped 159,000 to set another new record at 6.883 million – this is unfortunate as claims had halted what was a 19-week march higher before easing in the prior three weeks.
The insured unemployment rate, the jobless rate for those eligible for benefits and a number that has historically tracked the direction of the overall unemployment rate, returned to 5.1% -- the figure has been wavering between 5.0% and 5.1% for several weeks now.
We’ll watch for next week’s data to get a better glimpse on initial claims, but it appears we’ll move back above that 600K level and the move may be abrupt as claims are likely pent up due to the office closings on July 3.Wholesale Inventories
The Commerce Department reported that wholesale inventories fell less-than-expected in May, down 0.8% after an upwardly revised 1.3% decline for April. This gives us a sense of what next week’s business inventories number is going to post and since this latest look was pretty much in line with expectations the final Q1 GDP print will probably not be revised.
The sales data within the report posted a monthly increase of 0.2%; we’ve seen just two increases in merchant sales over the past 11 months. While it’s good to see a rise, and a trend higher is what we’re watching for, the May increase was completely due to higher energy prices as the ex-petro sales figure was down 0.3%.
We should see inventory rebuilding catalyze, even if it’s a mild boost, economic activity by the third quarter and when the ex-petro sales figure begins to rise…well, then we may be onto something.
Chain Store Sales
The International Council of Shopping Centers (ICSC) released it same-store sales survey yesterday and reported that year-over-year results fell 4.6% in May. This marks the eight month of decline. While the overall reading is tough to gauge now since Wal-Mart halted monthly guidance, and as a result was removed from the overall ICSC index (it accounted for a huge percentage of the survey), the report is still helpful in offering a view within the various segments of the report.
All segments of the report, save drug stores, saw same-store sales decline. This is actually a bit worse than the April figures as drug and discount stores posted an increase in sales as compared to the year-ago period. Discount stores saw sales drop 3.5%; apparel-store sales fell 5.0%; department-store sales plunged 9.4%; luxury-store sales got clocked again, falling 18.1% -- this segment has been in a world of hurt, posting at least a 17% year-over-year decline in sales each month going back to October.
Comparisons are going to get incredibly easy for retail chains as we head into the fall, and this might be what it takes to halt this string of monthly declines – we’ll need easy comps as it will be a while before consumer activity begins a sustainable upswing as the labor market remains fragile and we have a negative wealth effect sapping consumer vitality, which is very evident within the luxury segment.
Have a great weekend!
Brent Vondera
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