Dueling Data Points

The stock market seems to be back in data-dependency mode, results on any given day being based largely on whatever new economic and corporate data is hitting the newswires. Today was a good example. The day opened with much attention being paid to retail sales. The International Council of Shopping Centers, based on results from 47 retailers, said that August sales rose 2.9%, significantly ahead of projections. Wal-Mart (WMT), Target (TGT) and other chain stores also reported brisk back-to-school sales for the month. This suggests that consumer spending may remain strong despite the real estate downturn. On the other hand, the Mortgage Bankers Association said today that foreclosures and delinquencies are at record highs. Almost 15% of all subprime mortgages are late making payments. It's hard to see how that is good news for anyone.

Meanwhile, various Federal Reserve officials presented various opinions about the economy today, leaving observers no more enlightened than before. The consensus of today's speeches seems to be that the Fed may need a little more convincing in order to deliver a rate cut at its next meeting; none seemed to think that the housing slowdown has yet spilled into the broader economy. A flight-to-quality in the bond market remains in effect, with 10-year Treasury yields dropping fast and widening spreads with corporate bonds both in the U.S. and Europe.

Gold moved above $700 today for the first time since May, while crude oil traded above $77 before pulling back. With the Fed and other central banks acting to increase market liquidity, money-supply figures seem likely to increase. In that scenario commodity prices tend to rise. Other supply and demand factors are still relevant, of course, but all other things being equal monetary expansion is bullish for commodities. This is another factor arguing against an interest-rate cut.

Tomorrow brings the August unemployment and payroll data. This is always a critical report, and for seasonal reasons August tends to be weak. The consensus among economists is that nonfarm payrolls grew by just 92,000 in August. A lower number might be short-term bullish if it gives the Fed another reason to cut rates. With another seven market days to go before the Fed meets on September 18th, however, this number may be long forgotten before it matters.