Before the start of trading, the Commerce Department released a report showing much stronger than expected retail sales growth in the month of April.

The Commerce Department said retail sales surged up by 1.3 percent in April after slipping by 0.3 percent in March. Economists had expected sales to climb by 0.9 percent.

Look, we have just come off week after week of companies reporting terrible Q1 Earnings, including many big retailers. How is it that the government can report such a major improvement on the heels of earnings failures?

You will not hear this in very many places but the government uses somewhat arbitrary seasonal adjustments in nearly all of their economic reports. In this one, the government use a three times lower than normal estimate of retail sales, thus lowering the expectations to the point that complete failure in earnings reports still produces a surge in expected sales from the government. This goes on so much it makes us wonder why government economic reports even exist. It really is more like Pravda than reality.

Excluding a jump in auto sales, the government reported that retail sales still rose by 0.8 percent in April compared to an upwardly revised 0.4 percent increase in March.

In addition, a separate report from the University of Michigan also showed that consumer sentiment jumped to an eleven-month high in May, again not squaring with corporate earnings guidance.

Despite the fallibility of these reports regarding some optimism about the economic outlook, the data also leads to speculation about the possibility of an interest rate hike in the June FOMC meeting (. . . and there it is again, Federal Reserve jaw boning).

In response to the retail sales data, Steve Murphy, U.S. economist at Capital Economics, said a June rate hike by the Federal Reserve is a toss-up.

“The activity data certainly warrants a hike, but separately we are becoming worried that May’s employment figures could be pulled down by a couple of big temporary factors,” Murphy said.

He added, “Given how cautious the Yellen-led Fed has shown itself to be, the decision next month could go either way.”

It is silly to try and outguess a Federal Reserve that perpetually talks both ways on all things economic. But my assessment is that they are on semi-permanent hold, despite the phony spin from phony economic reports the government pumps out.

Worst Earnings Season Since Financial Crisis

Over 90% of companies have reported their Q1 2016 earnings and the results confirm the worst quarterly report since the 2008 financial crisis, averaging 15.7% year-0ver-year declines. This earnings quarter also marks the first time we have seen four consecutive quarterly declines since the 2008 financial crisis.

And while much of the contraction can be blamed on the massive drop in energy revenues and earnings, a big surprise is that there were numerous consumer and retail company misses this quarter – so much so that second quarter downward revisions are already starting.

There is simply no correlation between real earnings and revenues and the government’s monthly report on retail sales, which came in on Friday at the best level in 13 months. Our suspicion for a long time is that the government more and more often blatantly fabricates their economic reports by using arbitrary seasonal adjustments and other accounting gimmicks designed to make the administration look good in spite of conflicting non-government data.

This coming week will see the last batch of corporate reports, mostly out of retail stocks, as 12 of the 21 companies in the index scheduled to report earnings next week are retailers.

There is a big shift occurring in retail as internet retailers continue to improve and expand in the face of deteriorating brick and mortar outlets. For example, eight of thirteen retail sectors still show some earnings growth but only the internet retails sector can show impressive performance. The others are dismal. And the five sectors showing year over year declines represent a massive proportion of our economy.

I’m sorry this is so hard to read, but the top of the chart shows that Internet Retail Sales are up 143%, and the bottom shows the major Department Store sector at an earth shaking year-over-year decline of 48%. Some well-known companies like Macy’s, Kohl’s and Nordstrom have become recent “losers” in the earnings race.

We will see a lot more of this declining consumer performance in many of these final retail earnings reports this coming week, including reports from the giants of brick and mortar, Wal-Mart, Home Depot, and Target.

Be forewarned that over 70% of retail sales companies have already issued negative guidance for Q2 2016 earnings season, averaging a 5% decline. And Q2 earnings season will not even begin until mid-July, two months away. It’s going to get ugly – Q2 is set up to be the 5th consecutive earnings decline. Official recession declaration is merely a formality now.