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July 08, 2010 at 08:00 PM
Retail, credit, and jobless claims data released Thursday, July 8, suggested that the U.S. economy continues its upward climb but that consumers have a long way to go before they can regain the ground they lost when the recession hit.
Retail chain-store sales were mixed, with half of stores matching analysts’ expectations and the other half falling behind. Data reported by the Federal Reserve showed that consumer credit decreased at an annual rate of 4.5% in May, with revolving credit 10.5% lower. Initial jobless claims declined by 21,000 to 454,000 in the week ended July 3, compared to economists’ expectations for a 12,000 drop in claims.
Stocks rose on the news, with the Dow Jones industrial average rising 120.71 points, or 1.20%, to close at 10,138.99.
“Consumers are willing to spend when the merchandise is right, but they’re still feeling the economic pinch especially in respect to the jobless numbers. That really impacts my sector,” said Chandi Neubauer, a soft-line retail analyst for New York-based Majestic Research. “The winners are still winning and the losers are still losing. It has really bifurcated the market. People are willing to spend $200 on a jean that they like, and then there are other retailers that can’t get rid of a jean for $4.99.”
The stock market’s uneven performance in the last two months also contributes to consumer uncertainty. The value of retirement funds has eroded since the Dow’s April peak, 13% above where it now stands, just as the effects of the federal government’s stimulus plan are wearing off and hurting home sales.
Though the jobless claims numbers were positive, they don’t yet show strong evidence that companies are hiring again.
“This is welcome news and we’d love to be able to say with confidence that it marks the start of a renewed downward trend, but we cannot,” said Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York, in an analyst note. “Even at the best of times single weekly claims numbers cannot be taken very seriously, but right now the data are likely distorted.”
Further evidence of the instability of retail sales this week came from the Johnson Redbook Retail Sales Index, released Wednesday, June 7, which showed a 0.5% drop compared to May, although the index was 3.1% higher than it was a year ago.
