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It’s Up To The Consumer

August 29, 2011 – 4:58 pm

Hurricane Irene and the breakup of last week’s central bankers meeting fade as the stock market always looks forward. This morning’s up move is from both a relief rally because of the lack of severe damage from the hurricane and a better than expected July income and spending report released this morning.

Income rose .3% and spending was up .8%. The income number was expected but the spending was higher than expected, most of it due to auto sales. Last month auto sales were the cause of a very small number. The savings rate in June was up to 5.5% but July it fell back to 5%, a reflection of more spending.

Also in this morning’s report the PCE number, an inflation gauge that the Fed watches closely, fell to .2% when the expectation was for a .4% increase.

Less inflation and more spending by the consumer is good for the economy. But is it the beginning of a trend or is it just a bounce from June that will fade? Back to school sales might give us a further hint. Investors and traders will be watching closely.

The headwinds to our recovery are still in place: European debt and U.S. debt. Retail sales could trump these issues but the consumer is worried and governments that seem dysfunctional only add to that worry.

This week will see a lot of economic data being released with Friday’s jobs report being the most anticipated. The estimates are for a meager 75,000 new jobs. That is a pretty low number.

Good Trading
Steve Peasley

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