A strong U.S. dollar and slowing global market concerns have commodities trading lower.  Copper and silver are both lower by over 4%.   Crude oil is down 3.18% following the Energy Information Administration (EIA) report showing an unexpected weekly build in inventories.  Crude inventories rose by 6.8 million barrels, analysts were expecting a draw of 2.5 million barrels.

• Crude oil imports averaged 9 million barrels per day (bpd) last week
• Over the past four weeks crude imports have averaged 8.1 million bpd
• Crude inventories are 1% above the five-year average for this time of year

The market was caught off guard on the size of the build, as we are in summer driving season when demand is strong.  The July retail sales report showed gasoline station sales rose 8% for the month.   

Retail Sales

Retail sales increased a strong 0.5% in July following June’s downwardly revised 0.2% increase (from +0.5%).  Excluding auto dealers and gas stations, July retail sales rose 0.6%.  Over the past 12 months, retail sales are up 6.4%. 

• Clothing and restaurant sales both rose 1.3%
• Grocery store sales rose 0.8%
• Home furniture declined 0.5%
• Department store sales rose 1.2%
• Health and personal care sales declined 0.4%
• Nonstore retail (e-commerce) sales rose 0.8%, helped by Prime Day
• Sporting goods, hobby, musical instruments and book sales were lower by 1.7%

Macy’s (M) reported impressive second quarter earnings, with broad-based strength across most categories and regions.  It was hard to find red flags in the report, yet, the stock is down over 13%.  It may be a sell-the-news type of reaction, considering the stock was up 66% from the beginning of the year.  Macy’s negative stock action is spilling over into department store retailers and apparel stocks.   The group seems to have gotten ahead of itself.  Restaurants are holding their ground, helped by an upgrade to Chipotle (CMG) to Overweight from Equal-Weight at Morgan Stanley.  Columbia Sportswear (COLM) is the lone retail apparel stock in the green.  Cowen upgraded COLM to Outperform from Market Perform. 

Nonfarm Productivity and Unit Labor Costs

Productivity in the second quarter increased 2.9% (consensus was 2.0%), it was the strongest increase since the first quarter of 2015.  Output increased 4.8% and hours worked increased 1.9%.  However, unit labor costs decreased 0.9%; hourly compensation increased 2.0% and productivity increased 2.9%. 

Unit labor costs decreased 0.9% from the first quarter of 2018; hourly compensation increased 2% and productivity rose 2.9%.  Labor costs are up 1.9% year-over-year but remains in check.

NAHB Housing Market Index (HMI)

Builder confidence remained optimistic in August.  The latest reading slid one point to 67 but remains strong.  NAHB Chairman, Randy Noel commented, "The good news is that builders continue to report strong demand for new housing, fueled by steady job and income growth along with rising household formations."  He further commented, "However, they are increasingly focused on growing affordability concerns, stemming from rising construction costs, shortages of skilled labor and a dearth of buildable lots."  The housing story remains the same, demand is there, but affordability is creeping into the picture and becoming more of a concern for first-time home buyers.  In the second quarter, 57% of homes sold were affordable for middle income households, that’s down from 62% in the first quarter.           

The Dow found support at its 50-day moving average @ 25,002, although, it did pierce that level briefly as it traded down to 24,965.  Currently, the Dow has regained the 25,002 level and is trading at 25,120, down 180 points, but 155 points off its lows.  REITS, drugs, staples and utilities are the only groups in the green.

Breadth: Negative      

• NYSE 890 advances to 2,017 declines; new 52-week highs 48 to new lows of 145
• Nasdaq 697 advances to 2,236 declines; new 52-week highs 56 to new lows 182

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