Friday, August 29, 2014

Markets fluctuate on uneven economic data

Dow lost 16, advancers ahead of decliners 3-2 & NAZ added 13.  The MLP index jumped 4 to the 539s (another record & up a staggering 76 YTD) & the REIT index rose 1 to the 311s.  Junk bond funds did little & Treasuries edge higher.  Oil & gold hardly moved.

AMJ (Alerian MLP Index tracking fund)

CLV14.NYM...Crude Oil Oct 14...95.31 Up ...0.76 (0.8%)

GCU14.CMX...Gold Sep 14....1,286.00 Down ....2.70  (0.2%)

Consumer Spending
Photo:   Bloomberg

US consumer spending unexpectedly dropped in Jul for the first time in 6 months, a sign households are lagging behind as wages fail to accelerate.  Household purchases decreased 0.1% after increasing 0.4% in Jun, according to the Commerce Dept.  None of the economists projected a decrease.  Incomes climbed 0.2%, the smallest monthly advance this year.  Consumer spending, which accounts for 70% of the economy, has been held back by tight credit & meager wage growth that is barely able to keep up with inflation.  A sustained labor market upswing is needed to lift earnings & help boost outlays at retailers.  Purchases last month dropped 0.2% following a 0.2% increase in Jun after adjusting for inflation.  Spending on durable goods, including cars & trucks, declined 0.6% after adjusting for inflation, following a 0.5% advance in Jun.  Purchases of non-durable goods, which include fuel & clothing, fell 0.2%.  Household outlays on services decreased 0.1%.  Prices tied to consumer spending rose 1.6% in the year ended Jul, the same as in the prior month.  Federal Reserve policy makers aim for price increases of 2% a year.  The core prices category, which excludes fuel & food, increased 0.1% in Jul from the prior month & was up 1.5% from a year ago.  Merchants are coping with a retail slump that has them relying on sales & trying more promotions to drive customer traffic.

U.S. Consumer Spending Falls for First Time in Six Months

Consumer sentiment unexpectedly rose in Aug, showing a brightening in Americans’ moods as the labor market gains traction.  The Thomson Reuters/University of Michigan final sentiment index rose to 82.5 from 81.8 in Jul.  The projection called for 80 after a preliminary Aug reading of 79.2.  Payroll gains at their strongest pace since 1999 & muted firings are keeping consumers upbeat about the economic outlook.  Stronger wage increases & more broad-based improvement in the labor market may be needed to return sentiment to pre-recession levels & help spur consumer spending.  The index averaged 89 in the 5 years before Dec 2007, when the last recession began, & 64.2 in the 18-month contraction that followed.  The Michigan sentiment survey’s gauge of current conditions, which measures Americans’ views of their personal finances, rose to 99.8 in Aug, the highest in 7 years, from 97.4 a month earlier.  The initial figure was 99.6. The index of expectations 6 months from now declined to 71.3 from 71.8 last month.  That preliminary reading was 66.2.

Consumer Sentiment in U.S. Unexpectedly Increased in August

European Central Bank President Mario Draghi
Photo:   Bloomberg

Euro-area inflation slowed in Aug & the region’s unemployment rate remained close to a record, increasing pressure on the ECB to take action to kindle the bloc’s faltering recovery.  Consumer prices rose 0.3% in Aug from a year earlier after a 0.4% increase in Jul, the EU statistics office said, the weakest rate since Oct 2009 & in line with the forecast.  Unemployment remained at 11.5% in Jul.  Today’s data add to the case for more stimulus when policy makers meet next week.  ECB President Mario Draghi has pointed to sliding investor bets on prices, sparking a debate about whether quantitative easing is needed to steer inflation in the region back toward the ECB’s goal of just under 2% & foster economic growth.  The core inflation rate, which strips out volatile items such as energy, food, tobacco & alcohol, rose to 0.9% from 0.8% in Jul, according to Eurostat.  Draghi’s hint that the ECB is considering large-scale asset purchases, a tool it has so far shunned, came less than 3 months after policy makers unveiled unprecedented stimulus that included targeted long-term loans for banks & a negative deposit rate.

Euro Inflation Slows as Draghi Hints at More ECB Stimulus

Stocks are meandering around on low volume.  However, consumer spending & attitudes remain inconsistent, not encouraging for a stronger economic rebound.  There are reports that cots have been set up in the NYSE so traders can take naps.  Even in an uneventful day, the rise for the MLP index is startling.  Energy has been hot this year & the need for more infrastructure to bring energy to markets is not lost on investors.

Dow Jones  Industrials

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