U.S. Retail Sales, Weekly Jobless Claims, Europe

I hope you had a pleasant weekend. Let’s take a look at what is going on in the economy.

Last week we learned that:
– U.S. retail sales fell for the 3rd straight month, something that usually only occurs during recessions.

– Weekly jobless claims came in much higher than expected (translation: more employers laying off workers than expected).

– Quarterly earnings reports are in full swing and so far companies are reporting disappointing revenue growth. From Factset.com:
“Of the 104 S&P 500 companies that have reported earnings to date for Q2 2012, just 45% have reported sales above the mean estimate. This is the lowest percentage of companies to report actual sales above the mean at this point in the earnings season since Q1 2009.”
Revenue growth is something we watch closely and the trend this earnings season is not encouraging.

-Spanish bond yields hit an all-time Euro-zone high, closing Friday at 7.26%. Anything over 7% is dangerous to Europe so we will be extremely focused on this rate to see where it goes from here.

Despite this news, the S&P 500 and the Dow both posted gains for the week. I think there are several reasons for this. First, bond yields are so low that for many investors they would rather take their chances in stocks. Secondly, investors worldwide tend to invest more money in the U.S. when there is turmoil abroad and at this point that is helping U.S. stocks withstand some of the negative news. However, the earnings data and economic data need to improve soon if stocks are to continue to move higher.

A positive note, Bill McBride, a guru on the housing market, says the housing market has bottomed and has begun to recover. He does not believe that the recovery will be strong, or occur quickly but if he is right that the housing slide is over that is a positive to economic growth in the U.S.

For more on this issue read Bill’s blog CalulatedRisk:

Europe, again… plus LIBOR

No update would be complete without discussing Europe.  We found an interesting chart that compares credit creation (bank lending to consumers) in the Unites States to credit creation in Europe.  In the past year banks in Europe have stopped lending, while lending has increased in the U.S.  This is one reason why Europe is in a recession and the U.S. still is growing (albeit at a slow pace).  We anticipate lending in Europe will continue to deteriorate, driving them into a deeper recession.
For more on Europe vs United States click here:
Stock markets around the world soared after the latest European Summit and plans to stem the European debt crisis.  Spanish bond yields initially fell sharply however in recent days the bond market has realized that once again nothing was solved in Europe.  Spanish yields have rocketed back above 7%, signaling further trouble ahead.
Spanish 10-Year Bond Yield

Source:  Bloomberg.com
A parting shot, for those who are interested:
Cullen Roche, one of our favorite bloggers, points out that their is way too much media coverage on the LIBOR-fixing scandal: