Daily Commentary by Larry Baer: U.S. retail
sales fell for the third consecutive month in June. Overall sales were down 0.5% while the
component of the report that excludes autos was down 0.4%. It was the first time retail sales have dropped
for three months in a row since late 2008 when the economy was still mired deep
in the Great Recession. The retail data
is worrisome because it suggest consumer spending, the driver behind two-thirds
of all domestic economic activity, is sagging.
With consumer confidence deflated by the snails-pace of job growth, weak
stock market performance, and the growing fears of higher taxes and less
government spending it is no wonder consumers are essentially limiting
purchases to the essentials of food and clothing. The good news here is that puny retail sales
figures provide additional support for the prospects of steady to perhaps
fractionally lower mortgage interest rates.
The bad news is that weakness in the pace of retail sales tends to
manifest itself in soft demand for existing and new home sales as well.
Credit market participants around the world
will be listening intently to Fed Chairman Bernanke's public testimony on
monetary policy to Congress scheduled for tomorrow and Wednesday. His comments will be made against a
background of lethargic economic growth at home and a bubbling sovereign debt
crisis in Europe. The probabilities are high that Bernanke will
not stray far from his previous statements suggesting the central bank is
keeping the door open to a third round of quantitative easing (popularly
referred to as "QE3") if the economy takes a turn for the worse. Today's weak June retail sales number is
unlikely to tilt the Fed's scales one way or the other. Bernanke is more apt to take this opportunity
to urge Congress to act on fiscal policy, tackle the huge budget deficits and
to carefully study the potential unintended consequences a sharp cut in
government spending could exert on the struggling economic recovery. He will likely go to extra lengths to make
sure the members of these two Congressional committees, their Congressional
colleagues and the public-at-large are keenly aware further Fed action alone is
not likely going to resolve the fiscal challenges now confronting the nation.
If the assessment above proves even remotely
accurate -- the events of the coming two days will likely have little, if any
impact on the current trend trajectory of mortgage interest rates.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
