Phony Retail Sales Report

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.

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