Stocks Slip on Quiet Data Week

Equity markets retraced slightly during the week, with the Dow Jones Industrial Average losing 0.9% and the S&P 500 dropping 1.1%. 

A modest number of economic indicators were released last week, with the majority suggesting that the domestic economy remains on solid footing.  Consumer sentiment and retail sales were the bright spots, after concerns about what impact the weak labor report would have on the consumer.

Retail sales for August increased 0.6%, following a 0.3% bounce in July.  July was revised up from 0.0%, which initially caused consternation among economists.  Excluding auto sales, the gain was 0.3% in August.  Auto sales were very strong in the month, along with areas such as furniture, electronics, clothing, and food & beverage. 

Sentiment also saw an increase despite sluggishness in the labor market.  Initial readings on consumer sentiment for September rose to 84.6 from 82.5 in August.  Gains were largely concentrated on consumers becoming more optimistic about the economic outlook, while registering no change in their opinion on the current economic state.   

An area that is beginning to pick up traction is consumers’ use of credit.  In July, consumer credit outstanding grew by $26 billion, after increases of $18.8 billion in June and $19.3 billion in May.  A vast majority of the gains occurred in nonrevolving credit (such as student loans), but there is evidence that consumers are more willing to use credit cards once again.  It is uncertain as to whether consumers feel more economically sound and that is the reason behind the increase, or whether they are struggling with finances and using credit as a safety net.  This trend bears close watching in the coming quarters.

Source: Haver Analytics

At the same time, the Job Openings and Labor Turnover Survey (JOLTS) confirmed that labor markets were stuck in a modest summer rut.  The number of job openings was basically flat from June to July at 4.67 million openings.  From a broader trend perspective, a growing number of individuals continue to feel confident enough to quit their jobs.  In July there were 2.5 million quits, below the peak reading in December 2007, but well elevated from the post-recession lows.   

Source: Bureau of Labor Statistics

The Week Ahead

The economic calendar will be full this week, with a focus on manufacturing data Monday, inflation trends at the producer and consumer level Tuesday/Wednesday, housing starts on Thursday and leading indicators on Friday. 

Additionally, the FOMC holds its regular meeting on the 16th and 17th, with policy announcements at 2pm on Wednesday.  Economists do not foresee a major change to policy guidance during this meeting, but there will be special attention paid to any comments on future interest rate increases.

Markets will be keenly following developments surrounding the Scottish independence referendum, which goes to vote on the 18th.  Uncertainty about the outcome could trigger volatility in international markets.

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