Three reports were unanimous that sales gained, but to different degrees: Market research firm Retail Metrics Inc. said sales rose 1.1% last month, Thomson Reuters tallied a rise of 0.6% and a tally by International Council of Shopping Centers (ICSC) and Goldman Sachs Group Inc. (NYSE: GS) showed a 0.1% increase.

“Let the retail recovery begin,” said Michael Niemira, chief economist at ICSC. “This is the start of a better performance and better fundamentals.”

Retailers such as Target Corp. (NYSE: TGT), Aeropostale (NYSE: ARO) and Kohl’s Corp. (NYSE: KSS) raised their guidance for the current quarter ending October 31. But the encouragement was reserved as it pertains to the fiscal holiday quarter that starts next month for most retailers. Fundamentals key to consumer confidence – particularly unemployment, which rose to 9.8% last month – are still serious concerns.

“While our outlook for the third quarter has improved, we remain cautious in our expectations for fourth quarter results in both of our business segments,” said Gregg Steinhafel, Target’s chairman, president and chief executive officer.

Of course, retailers didn’t have to do much to beat last year’s September, which was relatively poor.

“You want to be careful how much you’re reading into the improved numbers,” Michael McNamara, vice president for research and analysis at SpendingPulse, an information service by MasterCard Advisors that estimates sales for all forms of payment, including cash, checks and credit cards in an interview with The New York Times.

For instance, jewelry sales increased 1.2% last month, McNamara said, “but that is still about 5% lower than we were in September 2007 and about 10% lower than the sector was in September 2006.”

“In some respects the sector has turned the clock back to 2005 sales,” he said.

While the bleeding at retailers may not have stopped, it has likely slowed as leading indicators such as the financial markets and consumer sentiment show improvement. The Standard & Poor’s 500 Index has risen more than 55% since its March lows, while the Reuters/University of Michigan Index of Consumer Sentiment was up to 73.5, its highest level since the start of 2008.

Among the biggest retail gainers on the stock market today (Thursday) from the news were American Eagle Outfitters (NYSE: AEO), which gained 8.88% to close at $18.14 and Abercrombie & Fitch Co. (NYSE: ANF), up 5.51% to close at $34.46.

Source: Will Rise In September Retail Sales Carry into Holidays?

No matter which path GM chooses – conventional restructuring or bankruptcy – the U.S. Big Three of GM, Ford Motor Co. (NYSE: F) and Chrysler LLC will have to adjust to the U.S. auto market’s post-financial-crisis “new reality.” Automakers will sell only 10 million cars and trucks in the U.S. market this year, the worst in at least 3 decades – and roughly 38% less than the 16 million vehicles that were sold in the United States annually in recent years before the financial collapse caused an accompanying collapse in auto sales.

Part of the reason for the slump in new vehicle sales is that consumers are increasingly turning to used cars. Pre-owned car sales are up 10% this year over last, as credit availability increases, but buyers focus on affordability. In fact, according to the most-recent report, used-car sales jumped in April, and the trend is expected to continue at least until the middle of the year as pent-up demand for affordable, pre-owned vehicles jacked up the used-vehicle segment of the auto marketplace.

Market Matters

U.S. Treasury Secretary Timothy F. Geithner put his most optimistic face forward in assessing the progress with the bank bailout plan. Geithner pointed out that the 19 stressed-tested banks have already raised $56 billion in capital [including Bank of America Corp.’s (NYSE: BAC) $13.5 billion stock offering] and several could begin to pay back Trouble Asset Relief Program (TARP) money shortly.  He also indicated that the public-private partnership to remove “toxic” assets from banks’ books should be up and running in the next month-and-a-half, a move that may instill greater confidence in the financial markets.

However, an analysis by The Wall Street Journal rained on Geithner’s parade by estimating that small and mid-sized banks could face losses on bad commercial real estate loans of $100 billion by year-end 2010. A Money Morning investigation of the looming commercial real estate crisis predicted that this sector of the real-estate market would pose major problems for the U.S. economic recovery.

Meanwhile, GMAC LLC may be close to receiving a fresh $7 billion in new (bailout) money as the government continues to seek ways to rescue the auto industry.  GM reached an agreement with its main union (UAW) that would reduce retiree benefits and overall labor costs to make them comparable to those of their foreign rivals.

As another negative earnings season comes to a close, investors searched long and hard for a bright spot – any bright spot.  With most Standard & Poor’s 500 Index companies reporting, earnings plunged more than 30% in the first quarter and are on track to fall 13% for the full year, the worst annual performance in six years.

Still, Thomson Reuters PLC (Nasdaq ADR: TRIN) says that a consensus of sell-side analysts projects a 29% increase in earnings in 2010 as cost-cutting measures pay off and relative results begin to look more attractive.

The Lowes Cos. Inc. (NYSE: LOW) reported better-than-expected quarterly profits and raised its outlook for the year, but The Home Depot Inc. (NYSE: HD) saw its numbers disappoint investors who were looking for stronger signs from the home improvement giant.  Likewise, Hewlett-Packard Co. (NYSE: HPQ) reported weaker earnings, and that spawned renewed pessimism for the high-tech sector.

On a brighter note, retailers Sears Holdings Corp. (Nasdaq: SHLD) and Aeropostale Inc. (NYSE: ARO) reported better-than-expected quarterly profits.  Ratings upgrades brought early promise as Citigroup Inc. (NYSE: C) boosted its forecast on homebuilder Lennar Corp. (NYSE: LEN); Deutsche Bank AG (NYSE: DB) raised its views on McDonalds Corp. (NYSE: MCD); and Goldman Sachs Group Inc. (NYSE: GS) made Bank of America a “Buy.”  However, S&P warned it may downgrade the United Kingdom’s debt below AAA due to ongoing economic obstacles, a development that prompted others to wonder if U.S. securities could face similar dire possibilities.

Crude oil surged past $62 a barrel on lower inventory data and gasoline climbed above $2.36 a gallon heading into the Memorial Day holiday weekend, a far cry from the $3.80 of this time last year – although it was 30 cents higher than late April levels.

Economically Speaking

While Geithner was “spinning” the bailout progress in the most favorable light possible, the U.S. Federal Reserve meeting minutes painted a picture of a more sluggish economy than most had predicted just three months ago.  In fact, the policymakers negatively revised their projections for economic contraction and warned that the unemployment rate could push toward 10% by the end of the year.  Still, central bank Chairman Ben S. Bernanke believes improvements are on the way as the impact of the Obama administration stimulus package aids in the recovery over the year’s second half. Furthermore, the Fed stands prepared to buy more U.S. Treasury and mortgage-related securities should such moves be deemed beneficial.

In the “it could be worse” category, Mexico (-21.5%), Japan (-15.2%), and Germany (-14.4%) each reported severe economic declines (as measured by gross domestic product, or GDP), as these three primary U.S. trading partners suffered the ill effects of the lower domestic demand for foreign-made goods and services.

Though the economic calendar was rather light during the week, some positive signs did emerge from deep within the numbers.  While analysts were surprised by a decline in April housing starts, the losses stemmed from a reduction in apartment activity, and single-family construction actually jumped by almost 3%, its second consecutive positive monthly showing.

Additionally, a private survey of the nation’s construction professionals depicted that homebuilder sentiment soared to its highest level in eight months, another sign that the prolonged housing slump may finally be nearing an end.

Finally, leading economic indicators, a predictive index that forecasts activity for the ensuing six months, turned positive after six straight down months.  Unfortunately, labor continued to struggle as the number of folks who have been receiving unemployment benefits for over a week hit a new record high.  While the economy definitely seems to be moving past the dreaded recession, any recovery will be limited as long as the labor picture remains weak and employees hold off on purchases until their job situations become more stable.  And the risk of a “double-dip” downturn remains somewhat high.

Weekly Economic Calendar

Source: As GM Cruises Toward Government Deadline, U.S. Automakers Must Learn to Deal With a Permanently Smaller Market

Goldman Sachs Group Inc. (GS) reports tomorrow (Tuesday), while JPMorgan Chase & Co. (JPM) reports Thursday, and Citigroup Inc (C) reports on Friday.

While the chief executives of several of the largest U.S. banks were quick to announce favorable showings for the first two months of the year, analysts are concerned that the strong showings may not have carried over into March, and that the performances of some of these money-centered banks may disappoint.

Contradictions hit the financials last week as diverse reports about Morgan Stanley (MS) and Wells Fargo brought even more confusion to a sector that cannot seem to stay out of the daily headlines. On one hand, analysts expect Morgan Stanley to write down an additional $1.2 billion worth of bonds; subsequently, the firm may suffer its second straight quarterly loss.

On the other hand, Wells Fargo expects earnings to far surpass Wall Street’s projections as its Wachovia Corp. acquisition has enhanced its mortgage-lending capabilities at a time when rates are at historic lows and when the U.S. housing market is showing some signs – be they ever so slight – of rebounding [Indeed, a Money Morning report from just last week made this same point].

Bear in mind that since the financials have led the charge in equities during the past five weeks, investors may be looking for any excuse to take some recent profits.  Intel Corp. (INTC), which reports tomorrow, Google Inc (GOOG), which reports Thursday and General Electric Corp. (GE), which reports Friday, figure to be crucial announcements.

The March inflation gauges highlight the economic calendar, and economists hope that price pressures remain far off of their radar screens.  The retail sales data should lend a bit more insight into the current plight of the consumer.

Market Matters

Alcoa Corp. (AA) kicked off earnings season with more of whimper than a bang.  While the aluminum producing giant lost about $500 million during the quarter, the company expects to benefit from the infrastructure programs promoted in the economic stimulus package – key areas that could enhance demand for its products.  Bed Bath and Beyond Inc. (BBBY) reported better-than-expected quarterly results and even received a favorable analyst upgrade.

With the season set to kick off in a big way in the weeks to come, Thomson Reuters has called for a 37% drop in profits at Standard & Poor’s 500 Index companies, the eighth consecutive quarterly decline (though that prediction came before the Wells announcement).

Economically Speaking

A light week on the calendar still provided plenty of headlines on the economic home front last week.  Corporate executives painted a rather bleak picture of the short-term future for U.S. industry as the Business Roundtable issued a quarterly outlook that turned negative for the first time in its survey’s history.  The majority of those participating expect their companies to experience layoffs and reductions in business spending during the coming six months.

However, Roundtable Chairman Harold McGraw III, who is also the CEO of The McGraw-Hill Cos. Inc. (MHP), expressed confidence in the Obama administration’s ability to generate renewed business activity. McGraw said he also believes the economy may be close to a bottom.

On the other hand, minutes from the latest U.S. Federal Open Market Committee policymaking meeting that U.S. Federal Reserve Chairman Ben S. Bernanke and friends revised their expectations (to the downside) for the economic recovery. While they anticipate that gross domestic product (GDP) will flatten (from its current contraction state) by the end of the year, unemployment is expected to continue its downward spiral well into 2010.

Though initial claims for unemployment benefits surprisingly fell last week, they remain at very high levels, and total claims (those looking for jobs over extended periods) jumped to a record high. While the trade deficit narrowed to its lowest level since November 1999, the improvement is more indicative of the sluggish economy and the reduced global demand for any and all goods and services.

Retailers posted their results of March sales and the numbers were mixed at best.  While Wal-Mart Stores Inc (WMT) had long been the one “steady Eddie” during this economic downturn, the world’s largest retailer reported March sales that missed expectations (though the company does expect its quarterly results to be strong, thanks to a stellar February).  Stores that target teens like Abercrombie & Fitch Co. (ANF), Aeropostale Inc. (ARO) and American Eagle Outfitters (AEO) each posted disappointing numbers, though analysts point out that Easter (and many spring breaks) fall later in the 2009 calendar (April 12 this year versus March 23 a year ago) and most holiday shoppers are waiting until the last minute these days.

Still, more than 50% of those retailers reporting beat Wall Street expectations, and some even issued favorable guidance for the quarter as a whole.  Of note, The TJX Cos. Inc. (TJX) (TJ Maxx and Marshalls) and Penney Co. Inc. (JCP) both posted better-than-expected sales results and increased their outlooks for the three-month period.

Weekly Economic Calendar

Source:  As Earnings Season Heats Up, U.S. Banks Will Make or Break the Stock-Market Rally