| Retail Sales : Over the past several weeks, the equity market has been spoiled with a slate of better than expected economic reports. More often than not, the underlying message in those reports is that the consumer is strong. Naturally then, there was a lot to expect heading into this morning's release of the February retail sales report. The consensus estimates said as much as they stood at +0.9% for the overall number, and +0.5%, excluding auto sales. As it turned out, those expectations proved to be too bullish as Feb. retail sales increased only 0.3% while retail sales, excluding autos, increased only 0.2%. As the declines in the major indices indicate, the market hasn't been too enthused by those headlines. That may seem odd to some readers considering that an increase in retail sales would normally be construed as a sign of economic growth. The truth of the matter is that it is a sign of growth, but there were two problems with today's report. The first problem was that the report itself didn't live up to expectations, and as most investors know by now, expectations are a key driver of stock prices. The second problem was that the modest increase in Feb. retail sales connotes that there may not be a great deal of follow through from the consumer in the economic recovery effort. That understanding, in turn, has raised concerns that the market may have gotten ahead of itself in discounting the likelihood of a strong economic recovery. Hence, the market has been on the defensive today as valuations are being called into question. By and large, though, today's fallout from the "disappointing" retail sales report has been limited as the market appears, at least, to be cognizant of the fact that the increase in the retail sales report is indicative of an economy that is growing. Granted, it may not be growing at the pace the market had hoped it would be growing, but it is still growing. Another supportive consideration is that the moderate increase in Feb. retail sales should help keep the Fed at bay in terms of raising interest rates. Overall, the Feb. retail sales report suggests investors may need to temper their expectations with respect to the likely strength of the economic rebound, but it doesn't disrupt the realization that the economy is on the rebound.-- Patrick J. O'Hare, Briefing.com |
