Huge 300,000 Bpd Fracklog Could Derail Oil Price Recovery
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Retail sales strengthened in July, led by a spurt in auto sales but with support from most other components. Overall retail sales in July jumped 0.5 percent, following a 0.3 percent rise the month before (originally up 0.1 percent). The July boost was just below the consensus forecast for a 0.6 percent gain. Excluding autos, sales were healthy, posting a 0.5 percent increase, following a 0.2 percent rise in June (originally flat). Analysts had estimated a 0.3 percent increase. Gasoline sales actually rose during the latest month, supporting ex autos. Sales excluding autos and gasoline in July advanced 0.3 percent, following a 0.5 percent rise in June.
Overall, the consumer is still spending, although the pace is hardly gangbusters. Despite difficulties in the financial markets, the consumer has not withdrawn to the sidelines.
On the news, both equity futures and Treasury rates firmed.
Initial jobless claims, for the first time since early April, are under 400,000, at 395,000 in the August 6 week in what is a positive indication of job market improvement. The four-week average of 405,000, down 3,250 in the week, is the lowest since mid April and is down now for the sixth week in a row. A month-ago comparison with early July shows a 13,000 decline in what hints at improvement for the August employment report.
Continuing claims also show improvement, down 60,000 in data for the July 30 week to 3.688 million. The four-week average is down for a third week in a row at 3.719 million. The unemployment rate for insured workers slipped one tenth to 2.9 percent.
The government is not citing any special factors in the data which is a positive surprise given possible distortions tied to summer retooling in the auto sector and to the temporary shutdown of the Federal Aviation Administration. Stocks futures came off lows, but only briefly, following this report which however was accompanied by an unfavorable trade report.
Despite help from lower oil, the U.S., trade deficit worsened further in June to $53.1 billion, following the unexpected ballooning of the gap the month before to $50.8 billion (originally $50.2 billion). The June shortfall came in wider than the market median forecast for $48.0 billion. Exports dropped 2.3 percent after slipping 0.5 percent in May. Imports dipped 0.8 percent, following a 2.9 percent jump the prior month.
The jump in the trade deficit was led by the nonpetroleum gap which widened to $36.9 billion from $33.7 billion in May. As expected, the petroleum goods gap narrowed to $29.6 billion from $33.7 billion in May. The services surplus nudged down to $14.5 billion in June from $14.6 billion the month before.
While the economy appears to be getting a boost from lower oil prices, the reversal in exports (hopefully temporary) is an offset.
The drop underway in long rates tripped a giant 30.4 percent surge in refinancing applications during the August 5 week. Applications are now at their highest level of the year while rates are at their lowest with 30-year mortgages averaging 4.37 percent, down eight basis points from the prior week. But low rates unfortunately aren't raising much demand for home purchases as the purchase index, down 0.9 percent in the week, remains depressed.
Fifth Consecutive Month of Decline
For the fifth consecutive month, NFIB’s monthly Small-Business Optimism Index fell, dropping 0.9 points in July—a larger decline than in each of the previous three months—and bringing the Index down to a disappointing 89.9. This is below the average Index reading of 90.2 for the last two-year recovery period. Expectations for future real sales growth and improved business conditions were the major contributors to the decline in optimism. With the repercussions of the debt compromise yet unknown, next month’s report will provide a more complete picture of the reaction on Main Street
"Given the current political climate, the protracted debate over how to handle the nation’s debt and spending, and the now this latest development of the debt downgrade, expectations for growth are low and uncertainty is great," said NFIB Chief Economist Bill Dunkelberg. "At the two year anniversary of the expansion, the Index is only 3.4 points higher than it was in July 2009. And considering the confidence-draining performance of policy makers, there is little hope that Washington will stop hemorrhaging money and put spending back on a sustainable course. Perhaps we might begin referring to the 'Small-Business Pessimism Index' from now on."
Fed’s Sheets Quits as Bernanke’s Chief International Adviser
The Federal Reserve said D. Nathan Sheets quit as the central bank’s chief international economic adviser after almost four years in the position and a day before policy makers meet.
The Fed, in a statement today in Washington, didn’t say why Sheets, 46, is leaving the institution. As director of the Division of International Finance, Sheets briefed Chairman Ben S. Bernanke and other officials on economic developments outside the U.S. and represented the Fed at international meetings.
Steven B. Kamin, a deputy director of the division, will serve as acting director, the Fed said.
Sheets is leaving as European leaders take action to avert a widening of the continent’s sovereign debt crisis and U.S. officials gauge reaction to the Aug. 5 downgrade of the country’s AAA credit rating by Standard & Poor’s. The Federal Open Market Committee meets tomorrow in Washington.
“Nathan has provided invaluable insight and stellar leadership at a time of great volatility in the world economy,” Bernanke said in a statement. “We thank him for his dedicated service and wish him well.”
Sheets is using annual-leave days between now and his official departure date of Sept. 9 and won’t attend tomorrow’s FOMC meeting, said David Skidmore, a Fed spokesman.
The departure means all three of Bernanke’s top staff advisers have left their positions or announced their departures in the last 13 months. Brian Madigan, former director of the Division of Monetary Affairs, retired last year, while the Fed said in May that David Stockton, director of the Division of Research and Statistics, is retiring Sept. 30.
Sheets, who like Bernanke earned a Ph.D. in economics from the Massachusetts Institute of Technology, joined the Fed as an economist in 1993. As division director since September 2007, he led a staff of about 120.