U.S. stocks fell after Tuesday morning’s opening in New York as investors reacted to the underwhelming U.S. data, which followed rosier-looking employment and trade reports of recent weeks.
Tuesday morning's economic data south of the border add to the growing sense that the U.S. is trending in the right direction, while serving as a reminder that the American recovery is a long way from what economists call "self-sustaining."
A U.S. Commerce Department report shows retail sales – a key barometer of the consumer spending that makes up 70 per cent of the economy in Canada's chief export market – rose in January, but by just 0.4 per cent, or half the gain Wall Street analysts were expecting.
Many analysts cheered the fact that "core" sales, a measure that strips out automobiles and gasoline, increased by 0.7 per cent, more than projected and the most since last March. But much of that was due to post-holiday discounting, as retailers tripped over each other to offer deals and make up for a disappointing December. And discounting, of course, is a form of economic stimulus in itself. So, while there have been many positive signs lately that the world's biggest economy is taking steps toward a healthier, more sustainable footing, unemployment is still too high for the U.S. to power forward without some artificial boost, whether it's from government or the private sector or some combination of the two.
A separate report Tuesday from the U.S. National Federation of Independent Business suggests that the faster hiring needed to prompt more consumers to spend confidently is under way, but slowly – and it is unlikely to take off any time soon.
The NFIB's index of optimism among small businesses, which describes almost all U.S. employers, showed confidence was little changed in January at 93.8, still well below the 100.6 score that the index averaged in the five years before the U.S. recession that started in late 2007. American business owners are guardedly optimistic that the economy will continue to get better. Still, as Alistair Bentley of TD Economics pointed out in a research note, their confidence remains at historically low levels because most smaller firms "are struggling to access credit, and net earnings trends remain firmly in the red."
Markets picked up on all of this. U.S. stocks fell after Tuesday morning's opening in New York as investors, already watching nervously for confidence-inspiring signals out of Europe, reacted to the underwhelming U.S. data (which followed rosier-looking employment and trade reports of recent weeks).
"The market had been bid higher on the back of a remarkable array of positive surprises," Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, told Bloomberg News. "I don't view the retail sales report as bad, but rather as lack of continued better-than-expected news. In addition, there's still fluidity to the whole European situation."
Though stocks fell, the Standard & Poor's 500 is less than 1 per cent off of a peak reached nine months ago, which was the index's highest level since June, 2008. That means investors by and large believe things are on the up-and-up. It could also mean they over-interpreted the latest wave of "green shoots," and should now brace for a wave of disappointments, with the rest of us having to hope they don't overreact.
Don't bet on the latter. Yes, the U.S. rebound – on which Canada's fortunes depend – has been a crawl. But U.S. companies are hiring and investing, if slowly, gradually generating momentum that will help offset whatever setbacks occur in Europe, or in market sentiment. Government data last week showed U.S. imports surged at the end of 2011, with Canada among the beneficiaries, and a week earlier the U.S. unemployment rate dropped to its lowest level in three years. Many economists say much more consumer demand could soon be unleashed as households, after another year of trimming their debts, make purchases they've put off.
And a report Tuesday from the Conference Board of Canada, on its "leading indicator of industry profitability," suggests the generally positive news out of the U.S. is brightening the outlook for Canadian industries, just in time to help the softening domestic labour market to stabilize, too.