Ahead of Wall Street - March 13, 2012

Tuesday, March 13, 202

The Federal Reserve is unlikely to announce any changes to its stance of monetary policy in the FOMC meeting today, but large segments of the market continue to hope for further help from the central bank. Those looking for any clarity to come out of today’s post-meeting statement will likely be disappointed as the Fed will be in a wait-and-see mode given the recent run of strong labor gains. Trading action in the market today will likely be no different from what we have been seeing in the last two days, though I would expect the bias to remain favorable.

Fed aside, the major news of the day pertains to solid Retail Sales numbers for February, with the ‘headline’ number coming largely in-line with expectations, but the ‘core’ number better than expected. When you combine this with the positive revisions to last month’s data, we get a fairly upbeat picture of the consumer spending scene. ‘Headline’ February Retail Sales were up 1.1%, compared to the January reading of a 0.6% increase. The January reading was revised upwards from 0.4%. The ‘core’ Retail Sales numbers, which excludes automobile and gasoline sales data, came in better than expected.

The strong Retail Sales reading is in-line with positive runs counter to positive reports of auto sales and other indicators from the broader economy. Automobile sales were very strong in February as we had seen recent days. Light vehicle sales were up from January’s 14.1 million annualized run rate to the 15 million annual rate in February. Measures of consumer confidence have been moving up and the labor market has been steadily moving in the right direction. The Retail Sales report is admittedly not a perfect proxy for ‘real’ consumer spending since this non inflation adjusted measure only includes 'goods' sales at retail establishments and leaves out the much bigger consumer outlays on 'services'. But it nevertheless provides valuable clues to trend in consumer spending, which is the backbone of the U.S. economy. The positive February numbers and revision to the January data improve the odds of creep up in first quarter GDP estimates, which at present is close to 2%.

In corporate news, Yahoo (YHOO - Analyst Report) announced that it was suing Facebook for multiple patent infringements. Urban Outfitters (URBN - Analyst Report) posted weaker than expected results after the close on Monday.

Sheraz Mian
Director of Research