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DOW + 5 = 17,408
SPX – 2 = 2083
NAS – 10 = 5033
10 YR YLD + .06 = 2.19%
OIL – 1.07 = 42.23
GOLD – 10.80 = 1115.70
SILV – .12 = 15.52
So, stocks closed basically flat, but it was a roller coaster ride. The major indices started the day in negative territory, then recovered, only to slide into the close. This was a very busy day for economic reports.
Sales at US retailers were solid in July and stronger than previously estimated for May and June. Retail sales rose a seasonally adjusted 0.6% last month, or by 0.4% excluding the auto sector. In the retail sales data in July, the gains were led by the auto sector, where sales jumped 1.4%. This was expected as the light vehicle selling rate rose to a seasonally adjusted 17.5 million units, the second best result since early 2006. And just a quick reminder that many auto sales are imports. But the sales gain in July was broad based. All sectors showed increases except electronics and general merchandise and department stores. In the past year, retail sales have risen 2.4%.
A side note here; it may seem strange that consumers are spending less on electronics, after all it seems like everybody has smartphones and other electro-gadgets; the reality is that we are buying this stuff but paying less for it. We are buying online and finding deals (we are not doing much shopping at department stores like Macy’s), and technology tends to get cheaper over time thanks to innovation (remember Moore’s Law). In fact, since the recession ended in mid-2009, the price of electronics is down 33%, by far the largest decrease of any category tracked by the Commerce Department.
Consumer spending is a huge part of the overall economy. This morning’s retail sales data was watched as a barometer of whether the Federal Reserve would be able to make the case that the economy was performing well enough for a rate hike in September. Of course you can choose any number of other economic indicators to push the barometric pressure one way or another. The Fed has not lifted its zero bound range for rates since it was set in December 2008; a challenging 7 years for retirees attempting to live on fixed income investments like US Treasury notes and bonds which have seen their yields cut in half, or more.
And this Zero Interest Rate Policy raises the nagging question of why the Fed has maintained an emergency posture on interest rates if the economy has actually improved. The Fed finds itself in a dangerous quandary: no ability to cut rates to stimulate the economy if growth starts to tank again because the Fed is already at the zero bound range; while conversely running the risk of setting off a global financial asset selloff that destabilizes markets further if it raises rates.
The prices the US paid for imported goods fell 0.9%Â in July, the biggest drop in six months. The price drop was led by a drop in fuel prices. However, excluding fuel, import prices declined by 0.3%. In the past 12 months import prices have dropped 10.4%, mostly because of lower oil costs. Import prices are down a smaller 2.6% excluding fuel in the same span. Lower import prices have helped keep a tight lid on US inflation.
US business inventories in June posted their largest gain in 2-1/2 years as sales rose marginally. The Commerce Department said that business inventories increased 0.8 percent, the biggest gain since January 2013, after an unrevised 0.3 percent rise in May. In the second-quarter GDP report published last month, inventories made no contribution to the second-quarter GDP annualized growth pace of 2.3 percent. Today’s report would suggest that second quarter GDP will be revised higher.
In the latest week, the number of people who sought new US unemployment benefits rose by 5,000 to 274,000. The level of applicants remained below 300,000 for the 23rd straight week. Claims hit a low of 255,000 in mid-July, the lowest level since the fall of 1973, but have since rebounded a bit.
