Market Commentary

Markets were relatively unchanged yesterday.
April 14, 2010

 Markets were relatively unchanged yesterday.  The data was largely a non event.  Alcoa’s earnings were nothing of great significance.  Today inflation data and retail sales are posted.  I would like to comment on the latter.

Last week the data suggested consumer credit contracted by a greater amount than expected.  Retail sales however have been generally stronger than anticipated.  Are these gains sustainable with a 9.7% unemployment rate?  Where or is how is the income being generated to support spending even as credit contracts?

As per the BLS the labor participation rate increased to 64.9% in March, the fourth consecutive increase and the longest string of increases since 2007.  This key measurement is up from 64.6% in December, 64.7% in January and 64.8% in February.  The primary reason for these gains...the creation of consulting and sole proprietor firms.

However I believe there is another factor at hand, a factor that cannot be measured.  Last month I quoted a Chicago Tribune article questioning whether or not longer jobless benefits produce longer unemployment.

The Tribune suggested workers on the low end of the socio economic spectrum are delaying looking for work because of the extension of these benefits, a reason why 40% of jobless American have been out of work for at least 27 weeks, the highest level since the government began keeping records sixty five years ago. 

What are the odds an underground economy has been created, one where work is performed, income in generated but not reported permitting household expenditures to rise to around pre recessionary levels? 

Radical thought?  Maybe but how else can the rise in retail sales be explained as consumer credit is still contracting and a jobless rate around a 30 year high. 

Incidentally the Tribune suggested the extension of these unemployment benefits accounts for about 1.0% to 1.50% of the 9.7% unemployment rate.  I then ask what the macroeconomic implications as these benefits are exhausted.  Will the unemployment rate suddenly decline suggesting a possible unanchoring of inflationary expectations?

The data is released at 8:30 and a 1.2% increase overall increase is expected.  Ex autos sales are anticipated to rise by 0.5%.

Last night the foreign markets were up. London was up 0.64%, Paris up 0.76% and Frankfurt up 0.76%.  Japan was up 0.39% and Hang Sang up 0.08%.

The Dow should open nominally higher as banking giant and technology titan, JP Morgan and Intel respectively, exceeded profit expectations.  The 10-year is off 3/32 to yield 3.83%.