During the week the market was exposed to a number of economic data points which ultimately helped drive equities marginally higher for the week. On Monday we received October consumer credit which came in better than expected at down $3.5 billion, compared to a revised -$8.8 billion in the prior period and better than forecast estimates of -$9.4 billion. While the head line number looks encouraging, implying consumer credit constrictions are easing, one needs to look at the breakdown between revolving and non-revolving.
The revolving debt revolving, which is the type of credit consumers use to buy everything but homes and autos, actually fell by $9.9 billion compared to -$10.1 billion in the prior period. It was the non-revolving debt that is used in buying homes and autos, which fell at -$4.9 billion compared to an increase of $0.2 billion in the prior period.
During Tuesday we received some sentiment surveys which was slightly lower than the prior period results, yet the markets improved nonetheless. On Wednesday the market received word that October wholesale inventories increased slightly by 0.3% after falling 0.8% in the prior month. Economists had expected inventories to decline by 0.5%. This news was seen as positive as market participants interpreted the increase as companies preparing for an expansion, regardless of whether the expansion is robust or mild.
While many investors were focused on U.S. economic data, the global financial markets received another shot to its confidence when S&P announced it had cut its outlook to Negative as the country’s public finances worsen. S&P, which had cut Spain from AAA to AA+ in January, indicated the country will experience a “more pronounced and persistent deterioration” in its budget and a “more prolonged period of economic weakness”. This is yet additional news to possible credit market disruptions following the Dubai and Greece news.
On Thursday further confidence was delivered in the form of the October trade balance figures along with initial jobless claims and continuing claims. The October U.S. trade deficit came in at -$32.9 billion from last month's revised -$35.7 billion and better than the -$36.8 billion estimate. While such results look good, one must consider that 90% of the improvement was due to the significant 9.5% decline in oil imports. Again, it’s very important to analyze all of the numbers that make up such numbers and not just react to the headline numbers.
The market also drew inspiration from the weekly jobless claims and continuing claims. While initial claims came in higher than expected, the all important four week moving declined to 473,750 from 520,500 of a month ago and 571,750 two months ago. This trend is obviously good news.
While the decline in the four week moving average is good news, the apparent lack of improvement in the continuing claims is troublesome. Of course many thought the decline in continuing claims to 5.157 million from last...