Good news from retailers, DOE wants more ethanol while job growth could offset a recession

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Consumer confidence is still high if back to school sales are any indication

Many analysts have predicted that fallout from the sub-prime fiasco would lead to a sharp drop-off in consumer spending. A post from the Big Picture, a widely-read business blog, details some very positive results from retailers based on back-to-school sales. Barry Ritholtz stated that even he was surprised by the positive numbers by declaring “I was not expecting very much in terms of back-to-school sales, but so far, most of what we have heard from the retailers was rather robust.”

One of the big leaders was retail giant Wal-Mart who “reported a higher-than-expected 3.1 percent rise in August sales, almost double the 1.6% expectations. “ This would seem to be a reflection of Wal-Mart moving back to its tried, tested and true tactics of “very aggressive price cuts.” The post also revealed strong earnings from the following chain stores “the big winners in the same-store-sales data were Saks (plus 18.2%), Zumiez (plus 17.4%), American Eagle Outfitters (plus 9%), Target (plus 6.1%), and Abercrombie & Fitch (plus 6%).”

On a recent episode of Larry Kudlow’s show, Ritholtz stated that strong back-to-school numbers from retail giants would be a “telling sign of the strength of the U.S.consumer -- and on first glance, its much better than I expected.”

Department of Energy makes 38 million available for cellulosic ethanol

Clean Edge, a blog specializing in Cleantech Investing, announced that the US Department of Energy has made 38 million dollars available to support the commercialization of enzymes for use in cellulosic ethanol. This latest environmentally-friendly initiative comes as part of President Bush’s plan titled Twenty in Ten. The post states that “Twenty in Ten seeks to displace 20 percent of U.S. gasoline usage by 2017 through diversification of clean energy sources and increased vehicle efficiency.”

This is another example of big business (and a Republican administration) recognizing the commercial potential of Clean Tech.

Specifically, the funding is available for research into commercially viable enzymes that would break down agricultural waste into fuel for automobiles. Clean Edge provided some specific details, “this biofuels effort focuses on production from non-food materials and agricultural waste – such as corn stover, switchgrass, and prairie grass.” The post also mentions that “enzymes developed under this FOA must prove durable and effective in process-relevant conditions.”

Gold markets are starting to resemble the oil markets

A post today on Seeking Alpha’s Hard Asset’s Investor Blog declared that tomorrow’s gold market could closely resemble today’s oil market. Simply put, less gold is coming out of the ground these days while above average demand in some foreign markets is helping to drive the price higher, possibly reaching what the author calls a “peak gold phenomenon.” The analogy is that “with oil, if wells run dry, the market notices and the price goes up, that higher price supports efforts to extract energy in less efficient ways, which is why spending on oil drilling is up.” However, the author is quick to mention that, in the long term, oil’s days as a commodity are numbered “eventually, with oil, alternative energy will no longer be a nice idea - it will be the only idea….But what about gold? What happens when demand shrinks?”

The author noted, “gold is valuable primarily because everyone thinks it should be.” If a peak-gold phenomenon was to develop, it was stated that “one of two things has to happen… One, people will bid hold up to ridiculous highs, because there’s less and less supply coming out of the ground. Or two, people will simply stop believing gold is valuable.” 

In relation to gold, these were described as “big-picture long-term headaches.” The author said that the short term problems for the gold sector remain “labor disputes and the never-ending dance about inflation.”

OECD says job growth key to averting a recession

Fall-out from the burst of the housing bubble will continue to give the American consumer more trouble than they probably need. A recent report by the Organization for Economic Cooperation and Development stated that “housing weakness will exert a longer and more potent than expected drag on the U.S. economy, leading to a distinct drop in GDP growth.”

Seeking Alpha editor Eli Hoffman commented on this today in their Market Overview Blog. He included a direct quote from the report stating that “it has not yet been possible to fully evaluate the negative impact of credit market turbulences on economic activity. In any event, consumer resilience will be tested by mortgage rate resets, tighter credit standards, weaker collaterals and slower job creation."

Hoffman speculates that these four factors will put a burden on the American consumer and that could trigger a slowdown in consumer spending. However, Hoffman was quick to note that the OECD stated “while housing downturns often lead to a recession in the U.S… consumer spending has been resilient.” Hoffman and the OECD seem to be in agreement that if America can continue creating jobs through the sub-prime fall out that a “pronounced recession could be avoided.”

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