The equity markets treaded water today as a combination of better than expected European GDP and solid retail sales, counteracted the strong negative bias that still exists in the markets. The S&P 500 Index decllined by 4 points to close at 1079.
Gross domestic product for the European Monetary Union grew 1.0% compared with the first three months of the year, the strongest quarterly expansion since the second quarter of 2006, according to European Union’s Eurostat statistics agency. GDP, which measures the total value of goods and services in the economy, was also 1.7% higher than in the second quarter of 2009, the sharpest annual increase since the first three months of 2008. The figures were much stronger than economists’ estimates in a survey last week for growth of 0.7% on a quarter-to-quarter basis and 1.4% on the year.
U.S. retail sales rose for the first time in three months during the month of July, according to the Commerce Department, but the narrow gain and gas as demand fell for many other items. Retail sales rose 0.4%, the Commerce Department reported on Friday. The gain in Retail Sales was in line with expectations by economists. Excluding autos, all other retail sales rose 0.2%, after dropping 0.1% during June. Economists expected a 0.3% climb in July ex-auto sales. Excluding auto and gas sales, retail sales fell 0.1%. There were only four increases among the 12 retail categories in the Commerce report. June and May sales were revised up, falling 0.3% and 1.0%, respectively. Previously, the government estimated sales fell 0.5% in June and 1.1% during May. The retail report is a vital part of economic data because of the role the consumer has in the U.S. economy. Their spending in the second quarter was weak, and economic growth slowed sharply. Sales of dealers of cars and parts increased 1.6%, one of the largest contributors the overall retail gain. The gain in Retail Sales was important, and the markets escaped a situation where a worse than expected number (something negative), would have continued the route the market has been experiencing over the past 4 trading session. Retail Sales, along with Consumer Sentiment (which was reported on Friday and in line with expectations), gives analysts a view into consumer spending, which makes up approximately 66% of GDP in the US. With so much of market sentiment riding on job creation, it is very important for the consumer to continue to play a vital role in keeping the US economy on a slow growth projection.
Also in the US, the Reuters/Michigan Consumer Sentiment Index was released on Friday. The Sentiment index matched expectations of 69.6. Additionally, Business Inventories were released showing an increase of .3%, which matched expectations.