Economic news has been heavy the past two sessions, yet stocks have seen little movement. On Tuesday, weekly data on same-store sales, new home sales, consumer confidence and FOMC minutes were all released. On Wednesday, data on durable goods orders were accompanied by weekly mortgage applications and weekly petroleum inventory levels. Oil prices remain a focus today as well as Tropical Storm Gustav approaches the Gulf of Mexico.

Oil prices impact the economy in so many ways, thus the movement of this commodity gets a lot of attention. This is especially true when prices are so elevated, leaving consumers needing to choose where to cut spending in other areas. On Wednesday, crude prices moved above $118 a barrel on reports Gustav could develop into a hurricane and could hit key oil installations. At the same time, oil inventory levels fell by 100,000 barrels this past week with estimates for a gain of a million barrels. Gasoline reserves fell 1.2 million barrels, though this was better than expected.

The fact oil prices have come off their highs near $147 less than two months ago has helped improve consumer sentiment. The Conference Board reported Tuesday that confidence in August improved to a level of 56.9, up from 51.9 in July and above estimates for a reading near 53.0. The expectations component saw a large 10 point jump for its largest monthly gain in nearly three years. One year inflation expectations, which are very important to the Fed, fell 8-tenths to 6.7 percent mainly due to lower fuel prices. The outlook for jobs continued to weaken, but the general feeling in the report was that the worst is behind us.

Durable goods orders did point to this conclusion with orders up 1.3 percent in July. This easily surpassed expectations for growth of 0.1 percent with gains outside of transportation orders strong as well, up 0.7 percent. Nondefense capital goods orders, which are a part of the business equipment component of GDP, rose 1.6 percent during the month. Nonetheless, durable goods orders are down 4.5 percent year on year.

One sector of the economy that is not seeing much improvement is the housing sector. New home sales did rise following lowered estimates for May and June, but at 515,000 annual units, there remains plenty of weakness. At least inventory levels fell by 7-tenths, though they remain very high at 10.1 months. The median price for a new home did improve 0.3 percent, showing a 7.1 percent year on year decline. The fact is that high prices for food and energy, combined with tough credit conditions and a weak labor market, are keeping the housing sector in the doldrums. In related news, mortgage applications for the week ending August 22 remained little changed at a reading of 315.9. Rates on a 30-year fixed mortgage averaged 6.44 percent during the week.

Same store sales this past week rose 0.2 percent week on week as measured by the ICSC-UBS report. However, year on year results remains mild at best at growth of 2.3 percent. The Redbook report did improve to 1.9 percent from the prior reading of 1.3 percent, but also remains weak. However, economists are hoping sales will improve as gas prices fall, although the housing sector and jobs market could have an impact on consumer spending as well.

Oil prices remain a focus for traders and economists alike with crude rising $2.09 a barrel Wednesday to a price of $118.36. Oil inventory levels for the past week actually fell by 100,000 when a gain of one million barrels was expected. This had an impact on crude futures, but not as much as Tropical Storm Gustav, which is expected to intensify and could hit key oil installations in the Gulf of Mexico.

Thursday’s calendar will see the release of several important reports, including data on GDP, corporate profits and jobless claims. Stocks gains ground on Wednesday on the mixed economic picture, something the bulls hope will continue on Thursday.


Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site