This has been a washing-machine type of week, with headlines and stocks sloshing around. I discuss a bit more in today’s Blue Chip Growth and Emerging Growth updates, but for this blog entry I want to focus on a few pieces of important economic news that you might have missed amid the focus on Syria.
The Good: Consumer Credit Showing Healthy Growth
In July, consumer credit rose by $10.4 billion, a 4.4% annual increase. Analysts had expected a $12.5 billion gain. Meanwhile, this was less than the prior month’s $11.9 billion advance, which was in turn revised down from the initial $13.8 billion level. Student loans and auto loans shot up $12.3 billion for the month, offsetting a $1.8 billion decline in credit card spending.
But while headline consumer credit continues to grow, the pullback in credit card spending could signal a more hesitant American consumer. This is the second consecutive month that revolving debt has fallen. I’m encouraged to see auto sales continue to grow—in August they surged at a 17% annual rate—but I will continue to monitor credit card trends to get a better sense of how the upcoming peak shopping season will pan out.
The Mixed: Will the Dramatic Job Numbers Hold?
Last week, jobless claims plunged 31,000 to an annual rate of 292,000. Economists had expected the measure to rise to 330,000, so these results were better than expected. At the same time, the four-week moving average fell by 7,500 to 321,250. This is the lowest level in nearly six years.
But I want to make a disclaimer here—two states weren’t able to process all of their jobless claims on time due to computer glitches. This is probably the real reason we saw such a dramatic drop in claims rather than an actual drop off in layoff activity. So while I’m encouraged that the four-week moving average has continued to fall, I expect there will be a big upward revision to this number next week.
The Not-So-Great: Retail Sales Gain, But We Want More
In August, retail sales climbed 0.2%. This came below expectations; economists had expected retail sales to advance 0.5%. Much of the gain came from auto sales, while sales of clothing, building materials and sporting goods fell. Excluding auto dealers, building material stores and service stations, retail sales also rose 0.2%. (I mention this because this "core" measure is used to calculate GDP growth.)
While this is the fifth month in a row that retail sales have climbed, we needed to see a bigger gain. Keep in mind that retail sales accounted for just about half of the 2.5% GDP growth we saw in the second quarter. So the latest retail sales report has prompted economists to lower their GDP estimates for the third quarter.
Have a great weekend,