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July retail sales inline with expectations

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The consumer continued to spend in July, but at a more modest pace that June, as the Commerce Department reported that July retail sales gained 1.2% in July to $304.3 billion, bolstered by spending on cars and trucks. Economists were looking for July retail sales to grow 1.1%, so this morning's numbers look inline.

Excluding a 4.2% jump in auto sales, retail sales gained just 0.2% versus economists' forecast for 0.3%.

In June, retail sales were revised modestly higher with total sales rising 1.4% (preliminary was 1.1%) with excluding autos rising 0.5% (preliminary was 0.4%).

In July, automakers reintroduced zero percent financing and other incentives to move cars and trucks off their lots, resulting in the forth best month ever in terms of units sold.

Total retail sales are up 4.8% in the past 12 months. Sales in the last 3 months are up 1% compared with the previous 3 months. Excluding autos, sales are up 3.9% in the past 12 months and 0.8% in the past 3 months.

The report shows that the gains in vehicle sales has a consumer willing to spend on big ticket items, but only if the price is right. But spending on other durable goods plunged in July and spending at department stores and specialty apparel stores was particularly weak.

Spending on more frivolous items, like eating out and personal care, soared, so consumers appear to have plenty of disposable income left in their pockets.

July is typically one of the slowest months for retail. Many retailers are trying to clear out their shelves to make way for back-to-school sales and fall merchandise. But this year, inventories outside the auto sector were already low, so few retailers were forced to hold "fire sales."

Fed meeting later today

The Federal Open Market Committee (FOMC) meets this morning and later today, at approximately 02:15 PM EST, is expected to announce its decision on interest rates.

Fed funds currently stand at 1.75%, and many market participants expect the Fed to stand pat on any interest rate moves and keep the Fed funds rate at 1.75% which is at 4 decade lows. While many believe the Fed won't move on interest rate, many do expect the Fed to shift its assessment of risk from neutral to weakness.

The FOMC has been warning all year that the loss of stock market wealth could retard the economy's growth. Consumer spending has been strong, but spending by businesses on capital equipment plunged during the recession and only now appears to be bottoming out.

The worry at the Fed and on Wall Street is that the loss of confidence and the loss of wealth could lead consumers to cut their spending, which would then force businesses to hold off on new investments.

Stock futures recover from their lows

Stock futures have recovered from their early morning lows on the retail sales numbers, but remain below fair value, which predicts a lower market open. S&P futures (sp02u) currently trade down 6 points at 896.60. NASDAQ futures (nd02u) are down 5 points at 938.50, while Dow futures (dj02u) are off 59 points at 8,611.

Fair value for the S&P 500 today $0.54. That price will not change during the session. HL Camp & Company has their computers set for program buying at $1.80 and set for program selling at $-1.86. Fair value for the NASDAQ-100 today is $2.10.

Jeff Bailey
Senior Market Technician
Option Investor

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