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No Recovery, No Kidding
By Jim Brown

The market lost ground today after economic reports and several corporate executives suggested the recovery may not happen until 2004. Where have I heard that before? Maybe in July 2000, 2001 and 2002. It is the month where expectations meet reality and for the last three years it has been the blind date from hell.

Dow Chart - Daily


Nasdaq Chart - Daily Bar


Nasdaq Chart - Daily Candle


The string is unbroken at 21 weeks and it does not look like it will change anytime soon. The Jobless claims soared to 439,000, +14,000 over consensus estimates and last week's number was revised up to 434,000. Continuing claims rose to 3.82 million and a level not seen since the early 1980s. This 20-year high was not received well by Wall Street. The insured jobless rate rose to 3.0%. Analysts trumpeted their seasonality claim for the increase this week. They have been trying to find an excuse for each of the last 21 weeks to no avail as the numbers continue to disappoint each week. This is also setting up another negative number in the Jobs Report for July. The lack of a recovery is being shown in the lack of jobs and the continued layoffs by companies still trying to cut costs from lack of demand.

Chain Store Sales showed a slight improvement of +2.4% but the gains were not broad based. WMT sales rose +2.7% but TGT only gained +0.8%, JCP +0.1% and KSS fell -2.4%. Several retailers issued profit warnings today after a lackluster month. The survey showed that most gains came from heavy promotional selling with high discounts which could hurt the bottom line as we saw with the earnings warnings. Additionally much of the sales gains came from the Harry Potter book and several new video releases. Those are one time events, not month to month improvements in general volume. Barnes and Noble said half of their +10.5% sales increase was due to the Potter book. Most retailers said their inventories are above plan which means they have not sold as much as expected and that old inventory will have to be heavily discounted to make way for the fall merchandise. Tax rebate checks and lower tax withholding beginning in July should help retailers get rid of the excess inventory but unemployment is still a problem.

Import/Export prices were about the only friendly report today with Import prices rising +0.8% and export prices falling by -0.2%. This is due to falling energy prices and the falling dollar. Considering the May import number was revised down to a drop of -0.8% the gain for June only produced a breakeven. Still the report was seen as evidence that deflation is less of a problem than earlier thought.

The MAPI Survey today fell to 60 for the 2Q, down from 63 in Q1 and 67 in Q4. The new orders index fell to 53 from 67. While this still shows growth most would argue that the magnitude of the drop is significant and could be seen as a warning for Q3. 77% of the survey participants reported operating under 85% of manufacturing capacity. The capital-spending component fell to 54 from 62 and indicates the potential for limited spending in the 3Q. While the overall survey still showed limited growth it did show that that growth was continuing to slow.