Stocks are having an overall down day as some rather mixed economic data coupled with a Fitch warning to U.S. credit worthiness and a decline in German economic output have all come together to shake investors' rather tepid enthusiasm, which has had the Dow Jones Industrial Average making small gains for the past four trading sessions.
Nicely encouraging today, and perhaps influenced by the better than expected improvements in the jobs market, was that retail sales data showed that the consumer is still holding strong. According to the U.S. Census Bureau, retail sales during December increased month-over-month by 0.5 percent, better than the Street's consensus estimate calling for a 0.2 percent increase, and still representing an improvement from the 0.4 rise in the prior month. Excluding automobile related revenues, retail sales increased year-over-year by 4.1 percent and increased month-over-month by 0.3 percent, matching the Street's consensus estimate. Of the thirteen categories that make up the result, eleven climbed, led by a 1.6 percent increase in motor vehicle & parts and a 1.4 percent rise in health & personal care stores. It is apparent that Northeast residents are still in the process of replacing autos damaged by super-storm Sandy, leading to an increase in automotive category. Given the importance of consumer spending, as it represents 70 percent of gross domestic product (GPD), the rise in retail sales may help to assuage the belief that GDP growth in the fourth quarter may not come in as strong as many expect.
Another report today showed that prices paid to producers declined for a third consecutive month as food costs eased. According to the Department of Labor, the Producer Price Index (PPI) in December decreased month-over-month by 0.2 percent; this compares with the Street's consensus estimate calling for no change. Eliminating the noise effects of food and energy to the price index, core PPI increased month-over-month by 0.1 percent, while economists' average forecast called for a 0.2 percent rise. The results are indicating that at the moment there is little inflation pressure in the economy, which bodes well for consumption and for the rebound in the economy in the short term.
On another negative note, manufacturing in the New York region continued to contract this month, as the industry continued to face the effects of fiscal uncertainty in the U.S. and lackluster demand overseas. According to the Federal Reserve Bank of New York, its general business conditions index January result landed at -7.8, lower than the Street's consensus estimate of 2.0, decreasing from the -7.3 reached in December. Given that readings greater than zero signal expansion, this month's result makes sixth straight month of contraction in the region that covers New York, northern New Jersey, and southern Connecticut. This weakness in manufacturing is holding back the economic expansion, negating the effects of improvements in housing and household spending that are contributing to growth.
Also certainly not helping equity markets today was news that Fitch Ratings warned Congress that failure to lift the borrowing limit would prompt a review of the country's debt standing. Just last month, Fitch Ratings had warned that the United States could lose its AAA credit rating on the risk of the fiscal cliff dilemma, but this threat in now gone. Nonetheless, today's comments make the third warning that the ratings agency has given, after Standard & Poor's actually did cut the U.S. back on August 6 of last year.
The Dow Jones Industrial Average dropped sharply at the open of today's trading session but has been recuperating for most of the morning and is currently on the cusp of entering winning territory. At this point, with so many companies still expected to report earnings and with so much more to come in terms of economic indicators, we expect a whole lot of volatility.