Stock Gains Today On News of Strong Retail Sales

Posted by - Friday, August 12th, 2011

This Friday morning began with early stock gains after reports revealed that retail sales rolse by 0.5 percent in July. Retail gains rose by the most they have in the past four months.

Data showed consumers spent more money on furniture, cars, clothing, and gasoline.

This news shows Americans exuding some level of confidence, although the mood seems to be "fragile" after the wild week for stock markets in lieu of the S&P credit-rating downgrade.

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The better-than-expected retail sales report is the second strong signal on the economy in as many days. Stocks rose in early trading. The Dow Jones industrial average gained 120 points.

On Thursday, the Dow closed up 423 points for the day after the government said the number of people applying for unemployment benefits dropped below 400,000 for the first time since early April.

"Don't write off the American consumer or economy just yet," said Sal Guatieri, senior economist at BMO Capital Markets. "The solid July retail sales report should help allay recession fears."

A batch of poor data and a gloomy outlook from the Federal Reserve this week have made investors more nervous that the economy could fall back into a recession. Stock markets have tumbled in recent weeks. The Dow has lost more than 1,400 points, or more than 11 percent, since July 22.

In addition to this news, the Commerce Department reported that businesses added to their stockpiles for an 18th consecutive month in June; which may be partly attributed to the surge in retail sales. "The rebound in sales should help to bolster shaky business sentiment and spur further inventory restocking in coming months," according to YahooFinance

Analysts believe back-to-school sales in this season's summer shopping is responsible for July's boost in retail sales.

So it seems as though some elements within the economy are alluding to some positive developments. Consumer spending is up, layoffs are down, and gas prices are dropping too.

Meanwhile, many concerned economists are hesitant to jump for joy just yet...

...this week the Fed acknowledged that the economy's problems are deeper. Its statement suggested growth could be dismal for at least two more years.

As a result, the Fed took the unprecedented step of pledging to keep a key interest rate it controls at a record low near zero at least through mid-2013.

Private economists have been busy marking down their own forecasts. Analysts at JPMorgan Chase said they expect the just 1.5 percent growth in the July-September quarter, a full percentage point lower than their previous forecast.

*Indented, italicized excerpts from YahooFinance.

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