U.S. stocks bounced between gain and loss on several occasions yesterday but eventually succumbed to another session of economic reports that missed expectations. 

Industrials, financials, basic materials and tech did manage to closer higher.   Consumer staples and telecoms led the six of the major 10 industry groups that lost ground. 

Crude held above $100/bbl (would easily trade below $70 if not for current and coming QE, but then the prices of many things would be lower) even after the weekly energy report showed crude inventories jumped another 2.88 million barrels (expected to fall 1.6 million).  That puts stockpiles 18% above the five-year average.  The overall commodity complex, as measured by the CRB index, was led higher led by the prices of sugar, natural gas, cotton and soybeans. 

On the European scene, Reuters reported yesterday morning that EU officials have mapped out a new three-year bailout plan for Greece that will supersede the plan agreed to a year ago.  Then about two hours later the EU Commission denied the report.  In any event, based on what’s been reported over the past couple of days, some new plan is in the works (especially since they deny it) and will involve some sort of “super senior” status (we’ve heard that one before) that will guard against losses. 

Thus the EU banking system will continue buying junk-rated government debt, or some form of EU bailout bonds, so Greece can roll the maturing bonds.  But this will just continue to saddle the banks with more bad assets as the PIGs (which will become the PIGS and then the PIIGS) weigh the entire euro zone down – the most troubled debts will either eventually be restructured (official default) or the worst of the worst will leave the zone so they can devalue and inflate much of this debt away.  What we’re seeing here is a Japanese-style “kick the can down the road” scenario that has resulted in two lost decades of economic growth – Japanese GDP has gone nowhere since 1991.  And it’s just not the euro-zone that’s unwilling to face the music, but the entire West. 

Market Activity for June 2, 2011

Sector Activity for June 2, 2011

Jobless Claims

The Labor Department reported that initial jobless claims remain stuck above the 400k mark for the eighth straight week as they fell just 6,000 to 422,000 (decline to 417K was expected) from an upwardly revised number for the previous week. 

(I don’t know if what we saw via ADP is going to totally show up in today’s official jobs data, but the claims numbers over the past two months show that job growth has decelerated in meaningful fashion.  The explicit estimate for May payroll growth is 165K, but the whisper number is closer to 75K after that 38K ADP reading.  However, I wouldn’t be surprised to see a 150K reading for May (ADP generally leads the government report by a month or two) and then a very weak reading for June.  We’ll find out shortly.) 

The four-week average fell 14,000 to 425,500 as the jump to 478,000 in the week ended April 29 is removed from the figure. 

Continuing claims were essentially flat, nearly unchanged from the prior week’s upwardly revised figures.  Standard claims (those that cover the traditional first 26 weeks of joblessness) came in at 3.711 million.  Another 4.04 million Americans are on emergency claims (which extend out to 99 weeks). 

These extended claims expire at the end of the year.  So we have the two-percentage point cut in the payroll tax and the extended level of jobless claims set to expire at the same time.  It will be interesting to see if policymakers allow either to expire. 

Factory Orders

The Commerce Department reported that factory orders fell 1.2% in April (a 1.0% decline was expected, so the misses continue) after the 3.8% increase in March. 

This report consists of both nondurable and durable goods orders; the primary reason for watching the report is for an early reading of how the month’s durable orders revision will shape out – the initial look at durable goods orders for the month is released two week prior to this factory orders report. 

The report showed that durable goods orders for April were unchanged from the initial look at -3.6%.  Excluding transportation, orders fell 1.6%, which was slightly worse than the -1.5% previously reported.  And orders for non-defense capital goods (the proxy for business equipment) fell 2.3% in April, a bit better than the -2.6% initially reported. 

The thing I found most interesting in this report is that transportation equipment inventories continued to increase – up 16-straight months.  And even removing commercial aircraft from the figure (which has seen inventories explode) transportation inventories accelerated to 9.5% at an annual rate over the past three month, up from 5% y/o/y.  It’s kind of difficult to blame the recent manufacturing-industry weakness on Japanese supply chain disruptions (mostly affecting the auto sector) when transportation-equipment inventories continuing to rise.

ICSC Same Store Sales

The International Council of Shopping Centers (ICSC) reported that same-store retail sales rose 5.4% -- that’s y/o/y growth.  (There is no estimate for this number.) 

The figure was boosted by a 10.4% sales jump among luxury-store retailers and a 12.3% rally for wholesale clubs – so the two opposite ends of the spectrum.  But when you exclude fuel sales, the wholesale results were cut in half to 6.5% y/o/y growth. 

In addition, this data is not adjusted for price increases.  If we take the latest personal spending figures as a clue for how much rising prices accounted for the sales increase (that report showed nominal spending up 0.4% for the month, but adjusted for prices the figure was flat), then at best we’re looking at a 1.5% y/o/y increase in real same-store sales growth.  This doesn’t matter so much for the retailer, but illustrates a standard of living problem for the consumer. 

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Have a great weekend! 

Brent Vondera, Senior Analyst

Phone: 636-449-4900