Retail Sales - "Reading Between The Lines"

“Retail sales rise better than expected 0.6 percent” is one of the headlines for the retail sales figures that were released earlier today.  Simply reading the headline can result in potentially misleading conclusions about the economy.  Taking a closer look at the figures reveals that half of the gain came from the rise in gasoline prices.  The other half of the gain came from the beaten down auto industry.  Therefore, excluding those items, retail sales were actually flat to down.  This important information is not conveyed by the headline and is a perfect example of why you have to “read between the lines”.  Our take on the figures is that consumers are still acting frugal, sticking with necessities, seeking bargains, and being very careful with their discretionary spending. 

Update for the week ending June 12th

The major stock market averages recorded slight gains last week with the S&P 500 Index rising 0.6% through Friday, June 12^th.  The price of oil continued to rise last week reaching an 8^th month high of $73 per barrel.  Gas prices followed suit rising for the 45^th consecutive day on Friday, the longest stretch dating back to the 1970s.  The stock market decline and the continued deterioration in home values resulted in U.S. household net worth falling to $50.4 trillion in the first quarter of the year, a decline of $1.33 trillion from the fourth quarter of last year, and the lowest net worth figure since 2004.  The Government’s attempt to battle the recession and bailout the financial and auto industries resulted in a budget deficit totaling nearly $1.0 trillion through May, with 4 months remaining in this budget year.  In response to growing concern with the ballooning federal budget deficit, investors gave a cool reception to the ten-year treasury auction last week causing yields to rise to nearly 4%.  Higher ten-year yields result in increased borrowing costs for consumers.  The thirty-year auction the following day was received more favorably, illustrating the “see-saw” mentality that prevails as investors react to the various economic indicators throughout the week.

The Stock Market Has Risen But Economic Uncertainty Still Prevails

The stock market, as measured by the S&P 500 Index, has risen nearly 39% off the lows reached during the second week of March.  This rise occurred as investor perceptions regarding systematic risk, particularly the failure of the banking sector, began to abate.  Additionally, the growing belief that the worst of the recession had past and that the Government's various stimulus programs would be successful in restoring economic growth also led to the stock market rally as investors began discounting an economic recovery.  Generally, most economic series are still deteriorating, but at a slower pace than late last year and earlier this year.  Potential areas that may turn out to be "speed bumps" to the eventual economic recovery are the rise in energy prices that has occurred in recent months with oil increasing from about $33 per barrel in March to $70 per barrel last week and the increase in interest rates on U.S. Government securities.  Ten-year U.S. Treasury rates have risen from around 2.0% at the beginning of the year to 3.86% last week.  I believe that the Government would have preferred that interest rates remained near their historic lows for a longer period of time to assist in stabilizing the housing market and stimulating economic growth.  While investor moods are profoundly different today compared to just a few months ago, great uncertainty with various economic cross-currents still exist.

WallStreetNot website is back online!

Today, the WallStreetNot website is back online with a new interface and valuable new features. We hope you take a moment to explore our new website and trust that you will find it as an informative new tool.

Some of the new features include the ability for clients to access their accounts through the website.  Video streaming and photo/video galleries are also new additions. An event calendar with attached brochures and information is now included as well. Additionally, we now have a financial blog where we can update you with some of our current thoughts or to share valuable information with you.

Sincerely,

Philip W. Loveless