Friday’s close represented the fifth consecutive day that the S&P 500 has rallied—the longest rally in five months! As I mentioned before, investors appear to be distracted by everything from the London Olympics to the upcoming Presidential Election to IPO season. And it certainly doesn’t hurt that the economic data from the U.S. has been largely positive. Last week, we had a few major headlines from several economic fronts, and I have boiled down all of the details into a quick and easy blog post.
In June, U.S. consumer credit grew just $6.5 billion, the least in eight months. This is much lower than the $16.7 billion surge in May as well as the consensus estimate of a $10 billion gain. The deceleration was caused by a 5.1% drop in credit card debt. This is the third time this year that consumers have scaled back on their credit card purchases. Meanwhile, non-revolving debt jumped 7.2%.
It’s too soon to tell whether consumers are curtailing their credit card purchases because they are earnings more or because they are becoming more nervous about the economy. Either way, I’ll be keeping a close watch on consumer confidence data as well as personal income reports to see if we can shed light on this latest trend.
The Labor Market
Weekly jobless claims declined by 6,000 to 361,000 in the latest week. Economists expected jobless claims to rise to 385,000. The four-week moving average rose by 2,250 to 368,250. This is the second consecutive week that jobless claims have moderated downward. Despite the fact that the four-week moving average ticked up last week, it remains far below the 400,000 benchmark that indicates contraction in the labor market. So it appears that the job market may be stabilizing.
Last month, the trade deficit narrowed by nearly 11% to $42.9 billion. This represents the most dramatic one-month improvement in six months. Economists expected the trade balance to remain at $48 billion, but a 0.9% jump in exports and a 1.5% decline in imports helped the trade gap narrow more than forecast. This is great news. Due to higher than expected productivity gains as well as a narrowing trade deficit, some economists are now expected to revise their second-quarter GDP estimates slightly higher.
In June, U.S. wholesale inventories dropped 0.2%, the largest decrease since September. This came far below economists’ estimates of a 0.6% rise and followed a flat reading in May. In June, wholesale inventories fell because distributors posted a 1.4% drop in sales—the largest drop in sales in three years. While this was probably the weakest report of the week, it is not cause for panic. The fact is that wholesales already have 1.2 months’ worth of stockpiles—the highest level in two and a half years. Businesses are being conservative going into the election, so it’s reasonable that they are cutting their inventories.
This week we’ll have seven key government and private sector reports to keep a lookout for, including retail sales, the consumer price index and the index of leading economic indicators. With these reports and earnings season still going strong, you better bet that I’ll have plenty of updates.