August 12: The Consumer is Alive – Economic Highlights

Following a record four back-to-back 400+-point moves in the Dow, will we close the week on an equivalent sized move on Friday as well? There is certainly no shortage of data, both here from the U.S. as well as from across the pond in Europe, that can provide the catalysts for moves in any direction.

But if we have learned anything from the rollercoaster ride of recent days, it is that foretelling the direction of the market’s day-to-day moves has become extremely difficult, if not altogether impossible. That said, I am reasonably confident that we are getting closer to a bottom.

The sharp pullback of the last two weeks reflected the adjustment process that the market needed to undergo to account for the economy’s reduced growth prospects in the second half of the year. The far more robust growth outlook that the market had earlier priced-in became untenable following the release of the second-quarter GDP and negative revisions to the prior quarters’ growth numbers.

A confluence of other unsettling developments, particularly the rating downgrade here in the U.S. and expansion of the European fears to Italy and France, added to the market’s woes. But while growth in the second half may be lower than earlier expectations, the U.S. economy is not heading towards a recession either. There is enough momentum in the economy’s underlying fundamentals to ensure steady, if unspectacular, growth.

This morning’s positive July Retail Sales numbers show that the U.S. consumer is not falling off the cliff. In fact, the ‘core’ retail sales numbers for July, which strip out automobile and gasoline sales, came in better than expected, and the prior month’s numbers were revised upwards. We see a similar trend in labor market readings in jobless claims and the July non-farm payroll numbers. The recent drop in oil prices adds a further positive element to this mix.

To be fair, none of these reports show evidence of gangbuster growth, but at least they are not pointing towards a recession. And that’s the key at this stage: the avoidance of a recession. Once the markets buy into the outlook that the U.S. economy can avoid a recession and grow on its own, they will find their footing. And each passing day gets us closer to that stage.

On the earnings front, we had Nordstrom (JWN) come ahead of top- and bottom-line expectations after the market close on Thursday. In a further sign that the high-end consumers were in much better shape, the upscale retailer raised guidance. Graphics chip-maker Nvidia (NVDA) also posted better-than-expected results after the close on Thursday. We had JC Penney (JCP) report in-line results this morning.

Business Inventories are scheduled for release today at 10:00 AM EST and are expected to increase by 0.9% after rising by 0.8% in April.