According to the American Commerce Department, retail sales increased by 0.3% against the forecasted decline by 0.2% while core retail sales (excluding the automobiles component) also were higher by 0.3% (analysts forecasted an increase by 0.2%). The retail sales report is a bright sign for investors who have to deal with the housing market slump and deteriorating labor market. The publication eased some concern that the U.S economy is falling into recession. Markets reacted positively to the news. The Dow Jones Industrial Average opened in green  and is 0.8% up for the day. The S&P 500, the broader measure of the U.S stock market, is also up by 0.6%.

Recession risks remain strong though. Demand from consumers will probably decline in the next couple of months. Both, the labor and housing market are in a crisis, with no signs of improvement. At the same time, Federal Reserve’s interest rate cuts have failed to lower borrowing costs for households and companies. All those factors will probably cause the Fed to slash interest rate one more time on their March meeting.

More will be known tomorrow, when Ben Bernanke, Fed’s Chairman, will testify before the Senate Banking Committee about the situation of the economy and financial markets. Secretary of the Treasury, Henry Paulson, and Securities and Exchange Commission (SEC) Chairman Christopher Cox are also scheduled to appear Investors will look for signs and words from which they can predict future monetary policy of the American central bank.

Adam Narczewski