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Fed Aims an Empty Gun
Tuesday's trade was born intertwined with the Federal Open Market Committee (FOMC) meeting and its resulting monetary policy statement. The market was hopeful Bernanke's posse might offer more quantitative easing, and trade hung in the balance. The result was that a sleepy market jumped to life precisely at the minute of the release. On the day though, the Dow still ended down a half a point.
FOMC Monetary Policy
After reporting on a more moderate pace of economic recovery burdened by high unemployment, tight lending, modest household spending increases, business reluctance to hire and little nonresidential structure investment, the Fed offered these promises of support:
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.
The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability."
It was little surprise, and substantively constitutes little support, but the Fed will be buying Treasury securities, which should be further supportive of low interest rates. Some of the lowest rates in recent history have not been enough though, so perhaps there's been a shift in paradigm.
Well yes, there has been, in case you've missed it. Free lending like that of the last few decades may never be seen again (again being the next few years of course). Financial regulation has intensified, and the exotic financial securities of yesteryear will not again inspire a housing demand inferno on the shifting of risk (again being until the next MBA conjures up the next great idea of course).
Productivity Data Downer
The Productivity and Costs Report for Q2 showed Nonfarm Productivity deteriorated by 0.9%. The reading was extremely disappointing, as economists expected no change from Q1 2010. It seems economists and most of the popular press forgot why this might have occurred, but we remembered as we scribbled away here. What helped to remind us was the revision of Q1 productivity higher by a full percentage point, to 3.9%.
Well it struck me that many datapoints looked this way around the turn of the quarter, and I recalled there was a good reason for it. This is why you read Wall Street Greek, because you have not seen this anywhere else today. The Easter holiday fell on April 4 this year, and this lifted March activity and led to a let down in April (the start of Q2). Of course, four other months should have diluted the effect, but perhaps not so much when coming off such low relative economic activity like that seen at the start of the year.
Unit Labor Costs increased by 0.2% in Q2, versus expectations for a 1.5% rise. Remember, labor costs react inversely to productivity, which makes perfect sense.
Small Business Sucks
Our boy Bill Dunkelberg was on Bloomberg Radio today, covering the release of the NFIB Small Business Optimism Index and more. Small Businesses continue to serve as a good barometer of overall economic activity. The index shed 0.9 points in July, following a sharp drop in June, and now sits at levels not seen since April (according to Bill's interview on CNBC). 90% of the decline can be attributed to the six-month outlook of business conditions, as seen by small businessmen.
"Perhaps there just are not enough bullets."
There's little confidence, and Dunkelberg says a lot of it has to do with the political spectrum this month. Who can blame small businessmen for losing confidence in the Administration or in the Federal Reserve, which have both failed thus far to revive the economy. Perhaps there just are not enough bullets.
Wholesale Trade data was reported this morning, and showed that while inventory increased by 0.1%, it outpaced sales, which fell steeply 0.7%. That's not good by the way... It was the second consecutive month of sales decline, offering further warning to double-dip doubters. The consensus of economists thought June Wholesale Inventory would increase 0.4%. Guess again... Oh when will they listen?
Sales Stink Too
The International Council of Shopping Centers (ICSC) data for the period ended August 7th showed same-store sales fell 0.2% week-to-week, extending from the prior week's 0.1% drop. Sales still managed 3.7% above the weak comparable period from 2009. We keep reminding you that last year's comps represent generation low economic activity per capita.
A Couple Old Shells Shot
In DC town, Congress was not sanctioning its members today. That's news now. They also were not on recess, as Congress passed a bill to provide another $26 billion in aid to states. Colorado and Georgia are holding primary votes as well, and Linda McMahon of WWE (NYSE: WWE) fame is seeking a role to play in Connecticut.
Overseas Off as Well
Overseas, the Bank of Japan (BOJ) kept its key rate steady. The neighboring Chinese saw domestic stocks drop the most in six weeks on a slew of economic data. Mostly, a slowdown in import growth worried investors that government economic reins might be working (which is a good thing since a bubble is building in Chinese real estate).
The corporate news schedule included Akamai's (Nasdaq: AKAM) presentation to the Pacific Crest Securities conference. Honeywell (NYSE: HON) and Avery Dennison (NYSE: AVY) both presented to the Jefferies & Co. Global Industrial and A&D Conference. The earnings schedule highlighted news from Walt Disney (NYSE: DIS), CareFusion (NYSE: CFN), AirCastle (NYSE: AYR), Apollo Commercial Real Estate (NYSE: ARI) and Applied Industrial Technologies (NYSE: AIT).
The remainder of the EPS reports included news from A.C. Moore Arts & Crafts (Nasdaq: ACMR), A.D.A.M. Inc. (Nasdaq: ADAM), A123 Systems (Nasdaq: AONE), ADDvantage Technologies (Nasdaq: AEY), Allot Communications (Nasdaq: ALLT), Alpha Pro (AMEX: APT), Amarin (Nasdaq: AMRN), American Claims Evaluation (Nasdaq: ALRN), American Shares Hospital (AMEX: AMS), Arotech (Nasdaq: ARTX), ATA Inc. (Nasdaq: ATAI), Axesstel (Nasdaq: AXST), BPZ Resources (NYSE: BPZ), Braskem (NYSE: BAK), Broadway Fin'l (Nasdaq: BYFC), Cardiovascular Systems (Nasdaq: CSII), Castle Brands (AMEX: ROX), Chatham Lodging (Nasdaq: CLDT), China Pharma (Nasdaq: CPHI), China Sky One Medical (Nasdaq: CSKI), China Valves Tech (Nasdaq: CVVT), China Yuchai Int'l (NYSE: CYD), Cimatron (Nasdaq: CIMT), Companhia Siderurgica Nacional (NYSE: SID), Copernic (Nasdaq: CNIC), Cover-All Tech (Nasdaq: COVR), CPI Aerostructures (AMEX: CVU), Cree (Nasdaq: CREE), Datawatch (Nasdaq: DWCH), Delta Petroleum (Nasdaq: DPTR), Dover Saddlery (Nasdaq: DOVR), EnergyConnect (Nasdaq: ECNG), Entertainment Distribution (Nasdaq: EDCI), Euroseas (Nasdaq: ESEA), Financial Engines (Nasdaq: FNGN), FirstCity Fin'l (Nasdaq: FCFC), Fossil (Nasdaq: FOSL), Gammon Gold (NYSE: GRS), Gartner (NYSE: IT), Gilat Satellite (Nasdaq: GILT), GNC Corp. (NYSE: GNC), Graymark Healthcare (Nasdaq: GRMH), Great Basin Gold (AMEX: GBG), Grubb & Ellis (NYSE: GBE), Gyrodyne (Nasdaq: GYRO), Henan Zhongpin (Nasdaq: HOGS), Home Inns & Hotels (Nasdaq: HMIN), Homeowners Choice (Nasdaq: HCII), Horne Int'l (Nasdaq: HNIN), Icagen (Nasdaq: ICGN), Inhibitex (Nasdaq: INHX), Intelli-Check (AMEX: IDN), International Power (NYSE: IPR), Ivanhoe Energy (Nasdaq: IVAN), JA Solar (Nasdaq: JASO), Jazz Pharma (Nasdaq: JAZZ), LDK Solar (NYSE: LDK), Learning Tree (Nasdaq: LTRE), Lime Energy (Nasdaq: LIME), Luna Innovations (Nasdaq: LUNA), Mackinac Fin'l (Nasdaq: MFNC), Merge Healthcare (Nasdaq: MRGE), Meta Financial (Nasdaq: CASH), MHI Hospitality (Nasdaq: MDH), Microfluidics (Nasdaq: MFLU), Mistras Group (NYSE: MG), Myriad Genetics (Nasdaq: MYGN), Neenah Paper (NYSE: NP), NeuroMetrix (Nasdaq: NURO), Northgate Minerals (AMEX: NXG), Omeros (Nasdaq: OMER), Orbit Int'l (Nasdaq: ORBT), Piedmont Office Realty Trust (NYSE: PDM), PokerTek (Nasdaq: PTEK), Psychemedics (Nasdaq: PMD), Quad Graphics (Nasdaq: QUAD), Rainmaker (Nasdaq: RMKR), Rand Logistics (Nasdaq: RLOG), Raser Tech (NYSE: RZ), RCM Technologies (Nasdaq: RCMT), RCN Corp. (Nasdaq: RCNI), Reeds (Nasdaq: REED), Rock of Ages (Nasdaq: ROAC), Rosetta Resources (Nasdaq: ROSE), Salary.com (Nasdaq: SLRY), SCOLR Pharma (AMEX: DDD), Semiconductor Manufacturing (NYSE: SMI), Sharps Compliance (Nasdaq: SMED), ShengdaTech (Nasdaq: SDTH), Star Bulk Carriers (Nasdaq: SBLK), StemCells (Nasdaq: STEM), STR Holdings (Nasdaq: STRI), SunOpta (Nasdaq: STKL), Symmetricom (Nasdaq: SYMM), Systemax (NYSE: SYX), Team Health (NYSE: TMH), The Hackett Group (Nasdaq: HCKT), Scotts Miracle-Gro (NYSE: SMG), Theragenix (NYSE: TGX), TigerLogic (Nasdaq: TIGR), Tower Semiconductor (Nasdaq: TSEM), TransDigm (NYSE: TDG), US Home Systems (Nasdaq: USHS), United Guardian (Nasdaq: UG), Universal Insurance (AMEX: UVE), Uroplasty (Nasdaq: UPI), US 1 Industries (OTC: USOO.OB), VIMCRO (Nasdaq: VIMC), Yucheng Tech (Nasdaq: YTEC), Zagg (Nasdaq: ZAGG) and ZST Digital (Nasdaq: ZSTN).
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