Headwinds Intensity

Economic activity still appears to be holding up at a pace that is consistent with at least modest economic growth. This week had a relatively light economic release schedule but the reports that were released tended to come in stronger than expected. Major reports include the ICSC chain store sales figures, which came were up 4.3 percent year-to-year. Chain store sales are clearly being bolstered by tax rebates. Most of the impact has been at discount stores and warehouse clubs. Department stores and most specialty apparel chains reported declines for the month. Furniture sales were absolutely awful. The major electronic chains and home improvement centers did not report sales. We suspect spending has held up at electronics chains, which should be one of the largest beneficiaries from rebates. Home improvement stores may also see another strong month for the same reason, with tax rebates trumping the drag from the housing slump.
First-time claims for unemployment insurance fell sharply during early July. Jobless claims probably are not as good as the drop suggests.