iamned.com

Right Again: Bad Retail Sales Numbers Not Such a Big Deal

I originally submitted this article on 4/14/09 following the release of poor retail sales data in response to overwhelmingly unjustified bearish sentiment on Seeking Alpha. Due to site maintenance very few pending articles have been published on Seeking Alpha today, but I’ll post mine here anyway, with a screen shot to prove how yesterday I was right in that retail sales doom and gloom was overblown.

It’s great being right almost all the time and making effortless money in the stock market with POT, MA, and GOOG stock as overrated experts commiserate over the mental recession and fake credit crunch.

On April 14th the Commerce Department reported total retail sales fell 1.1% last month, compared with February’s revised gain of 0.3%, which was less than analyst expectations of a gain of .3%. This news reversed the one month rally on renewed pessimism regarding the viability of a future economic recovery.

However, what isn’t being reported is how insignificant these retail numbers actually are. For one, if this entire rally is moot because of these numbers why did stocks only fall 1.7% instead of much a much greater amount, say four or five percent? Surely according to the bearish punditry these numbers prove the economy is in really bad shape, and really bad news entails a really bad sell off. So why did stocks hold up relatively well?

The reason has to do with the fact that the huge funds that move the market were anticipating poor numbers. Keep in mind that retail sales are a lagging indicator. What this means is that the large sell off between February and and early March were in anticipation of poor economic data. Now as this data unfolds the response is tepid because better economic data is expected months down the road.

Another reason why this data should be taken with a grain of salt is that retail sales tends to be volatile as you can see from the chart below:

Even during the 2002-2007 bull market retail sales dipped periodically.

In conclusion, retail sales isn’t an infallible economic indicator. Even in bull markets monthly retail sales number can be negative. In addition, large funds realize this which is why the stock market sell off yesterday was tame. I anticipate the rally will resume, and better economic news is anticipated.