One of the biggest problems with market forecasts is that if you miss a target, the market tends to overreact. The stock market’s history is filled with instances when a stock is punished hard because its company’s growth (mind you, we’re talking growth not loss or anything involving the company losing money) performance was a few fractions of a percent off expected performance. That’s how harsh the market can be. It’s driven by expectations. Well, considering how market psychology plays out, the recent US retail figures should be a cause for serious concern.
Analysts were expecting consumer retail sales in the USA to rise a modest 0.5%. I know, this is nothing to write home about but the smart money set were excited about the figure because it fits the fast emerging narrative that the US economy is finally out of the woods. After all, week after week of continuously improving job figures should make even the worst pessimist a tad bit optimistic, right? Well, economists got rocked when the actual retail sales figures dropped. We’re not just talking about a dip into negative territory, retail sales fell 0.9%. Wow. Talk about getting it completely wrong!
While pundits on the optimist camp were quick to spin the negative 0.9% number as primarily driven by crashing prices at the gas pump, this still leaves a still distinctively negative 0.3% drop in retail sales. Where is the recovery? Where is the increased purchasing motivation the so-called ‘lifting of the consumer gas tax’ prompted by lower gas prices? There are serious questions about the stability and quality of otherwise positive US jobs numbers and the drop in US retail sales definitely adds to the doubts. It is not direct evidence but it sure is quite a damning piece of circumstantial evidence that all is not as it seems in US economic recovery land. We’ll just have to wait for the next retail report to see if this is part of a pattern. If it is, it’s time to start reviewing those contingency investment plans.