Last Thursday, we got the most positive news of the week when the Labor Department reported that new weekly jobless claims plunged 19,000 to 366,000 — the lowest level since May 2008. The four week average of weekly jobless claims fell 6,500 to 387,750 — the lowest level since July 2008.
Clearly, the job market is improving fast. The stock market responded to this news and, although stocks fell for the first three days last week, most of the indexes eked out gains on Thursday and Friday, partly due to the Thursday jobs report.
Turning to the other economic statistics, the Commerce Department reported last Tuesday that November retail sales rose 0.2%. This amount is less than economists’ consensus estimate of 0.5%, but this is still retail sales’ 16th straight monthly gain. “Core” retail sales (excluding food and gasoline) did better, rising 0.5% due to a 0.2% decline in food sales and a 0.1% dip in gasoline sales. Also, sales at electronics retailers rose 2.1%, clothing sales rose 0.5% and home furnishings rose 0.4%. In addition, business inventories grew by 0.8% in October.
Looking to the longer-term retail sales trend, sales have increased at a 6.7% annual rate in the past 12 months and a 7.4% annual pace in the last three months, so overall retail sales momentum remains strong.
On Thursday, the Labor Department reported that November’s Producer Price Index (PPI) rose by 0.3% — slightly better than economists’ consensus estimate of 0.2% — while the core PPI rose only 0.1%. Then, on Friday, the Labor Department added that the November Consumer Price Index (CPI) was unchanged. The core CPI, excluding food and energy, rose 0.2%. In the past 12 months, the core CPI is up just 2.2%.
Most of the other economic news was also very positive. After the Fed’s FOMC meeting last Tuesday, the rate-setting group gave a statement that was more upbeat, saying that “the economy has been expanding moderately, notwithstanding some apparent slowing in global growth.” The FOMC voted 9-1 to keep monetary policy unchanged. The dissenting vote was cast by Chicago’s Fed President, Charles Evans, who gets my “weenie of the week” award by calling for further easing. To call for further easing while the Fed is maintaining 0% interest rates, flattening the yield curve with Operation Twist and promising not to raise key interest rates for at least two years, seems to be a blatantly political position.
In the end, however, the Fed’s ultra-low interest rate policy is incredibly bullish for stocks, which are poised to surge as soon as investor confidence improves and euro zone distractions begin to diminish.