Consumer Spending: There were two news releases in this area of the economy. First, retail sales surprised to the upside, printing a .5% increase. There were some good surprises within the internals. First, auto sales were up .4%. Second, electronic and appliance stores increased 1.4%. I consider both of these areas to be signs of consumer bullishness, as they are both discretionary items. Consumer sentiment, on the other hand, dropped to levels last seen a few years ago. The obvious culprit of this is the debt debate of the last few months, so we could see a rebound now that a deal has been reached. However, there is still plenty of reason for consumer sentiment to stay at low levels. In addition, this statistic has yet to really move higher for most of the expansion, indicating consumers are still very distressed about the economy and future.
Manufacturing: Business inventories rose slightly -- by .3%. This tells us that businesses are keeping a tight lid of purchases, as they are probably concerned about the future and don't want to be left "holding the bag." Productivity fell .3% in the second quarter, which is a mixed blessing. It could indicate that businesses are finally at a point where they need to start hiring in order to increase productivity -- that is, business has already squeezed as much as they can out of existing employees and needs to add more to payrolls. Or, it could indicate that less demand is dropping output. My guess is it's a bit of both. The drop in initial unemployment claims shows that there is less of a reason to lay people off, but manufacturing also saw a drop over the last few months because of the Japanese situation.
The overall news was mixed. While the retail sales number was good, the drop in sentiment was deeply concerning, even though it could be a one month issue. Businesses are obviously trimming their wings. My reading of the productivity number is a net positive, but we'll have to wait and see if that translates into increased hires.