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Producer Prices and Wal-Mart Results Give the Market Edge Over Weak Jobs Data

By , Money Morning •

By Jason Simpkins
Managing Editor
Money Morning

Stocks edged up in early morning trading today (Thursday) as an uptick in producer prices and steady earnings from Wal-Mart Stores Inc. (NYSE: WMT) outweighed a surge in jobless claims last week.

The Dow Jones Industrial Average was up 26.2 points, or 0.32% as of 11:00 a.m. today (Thursday), while the Standard & Poor's 500 Index was up 4.58 points, or 0.52%.

The surge was prompted by an increase in U.S. wholesale prices, which allayed concern over deflation. Producer prices rose 0.3% in April after falling 1.2% in March. Food prices posted the biggest gain, soaring 1.5% - enough to offset a 0.1% fall in energy prices. Excluding food and fuel prices, so-called core-prices climbed 0.1%.

The rise in producer prices accompanied an increase in import prices, which climbed 1.6% in April, the government said yesterday. Producer prices and the cost of imports comprise two of the three major gauges of inflation. The third measure of inflation, consumer prices, is scheduled for release tomorrow.

The rise in U.S. equities was further supported by a solid earnings report from Wal-Mart Stores Inc., the world's largest retailer. Wal-Mart posted a profit of $3 billion, or 77 cents a share, in the quarter ended April 30, up from 76 cents a year earlier, matching analysts' forecasts, according to Thomson Reuters.

Net sales for the quarter fell 0.6% to $93.4 billion, but the company blamed that decline on the negative impact of a stronger dollar, which dented international sales. Wal-Mart's international operating income fell 16.2% to $880 million on an 11.1% drop in sales to $21.3 billion.

However, international operating income at constant exchange rates was $1.13 billion in the three months ended April 30 on sales of $26.1 billion.

"In almost every country we grew the top line faster than the market despite the strong dollar and a recession that is even deeper in some countries than it is in the United States," said chief executive Mike Duke.

Wal-Mart's resilience offered a modicum of comfort to the retail sector after a report yesterday showed retail sales fell 0.4% in April, the eighth monthly decline in the last 10 months. Retail sales tumbled 1.3% in March.

Retail sales have been badly battered by a sharp rise in unemployment. And data from the Labor Department today furthered illustrated the frailty of the current labor market.

Initial claims for unemployment rose by 32,000 to 637,000 in the week ended May 9, from a revised 605,000 the week prior, the Labor Department said.

The economy has shed about 5.7 million jobs since the recession began in December 2007. Payrolls fell by 539,000 in April, as the jobless rate climbed to 8.9% - its highest level since 1983.

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