Wednesday was a busy day for economic data, but retail sales were the focus of the session. Traders are looking for signs that the consumer is returning and they got this, in at least a small degree, in September. Traders also got data on import and export prices, business inventories and mortgage applications. The Fed also released its minutes for the Sept. 22-23 FOMC meeting. Though traders are focused on earnings, today's economic data did help push the Dow ($INDU) through the 10,000 level.

The housing sector was hit extremely hard during the recession, but has shown signs of a bottom the past few months. Mortgage applications for the week ending Oct. 9 were a bit disappointing, but not surprising given the rise in mortgage rates during the week. Purchase applications fell 5.0 percent during the week with refinancing apps down just 0.1 percent. Refinancings make up 67.4 percent of all applications with homeowners taking advantage of low interest rates. However, the 30-year fixed mortgage rate rose 13 basis points this past week to move back above five percent at 5.02 percent.

The business inventories report for August didn't have much of an impact on trading. Nonetheless, the report showed a 1.5 percent drop in inventories during August, showing that businesses continued to burn through inventories despite a 1.0 percent rise in sales. However, economists believe August could end up being the bottom of the destocking cycle and this could mean a pick-up in production.

Export prices in September fell 0.3 percent month on month and are down 5.6 percent compared with the year ago period. Import prices were higher by 0.1 percent this past month, but down 12.0 percent compared with the same time period in 2008. This data points to rising pressures for crude and intermediate goods, but overall, inflation pressures remain tame. This was evident in the FOMC minutes from the September meeting as well.

The committee did raise its projection for real GDP growth in 2009 and 2010 and continued to state that interest rates will remain low for some time. Yes, there are some committee members that would like to see an unwinding of the Fed's balance sheet expansions sooner rather than later, but the consensus is that it won't occur in the near term. This news wasn't much of a surprise since many Fed leaders have been saying they do not expect an unwinding anytime soon.

The main report Wednesday came from the September retail sales release. Economists were looking for sales to fall 2.1 percent after a gain of 2.2 percent in August. However, retail sales actually fell just 1.5 percent and this was a direct result of lower auto sales following the end of the "cash for clunkers" program. When autos are excluded, retail sales rose 0.5 percent in September, 2-tenths more than expected. On a year on year basis, retail sales fell 5.7 percent in September, a tenth better than in August. Excluding motor vehicle sales, the year on year rate was down 4.9 percent, a nice improvement from the 6.3 percent drop seen in August.

Thursday's economic calendar is also rather heavy with several key reports on tap. Consumer prices in September are expected to show a 0.1 percent rise both overall and at the core, confirming the Fed's view that inflation is still in check. Jobless claims for the week ending Oct. 10 are expected to remain near the prior week's level of 521,000. The four-week moving average came in last week at 539,750. Two regional manufacturing reports are on tap Thursday with Empire State Mfg. Survey expected to fall slightly to 17.5 from 18.9 in September. The Philly Fed Survey is expected to decline a bit as well, to 12.5 from 14.1 in the prior month. Nonetheless, both reports are set to remain in expansion territory above the zero level.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site