Retail Sales vs. Consumer Sentiment: It's in the Revision, Stupid!

by: Markos Kaminis

The big question Friday was: Which data point is speaking truth between retail sales and consumer sentiment, and which is anomalous? We explore the possibilities here, and offer reasoning for why the contrast exists in the first place.

Retail Sales vs. Consumer Sentiment

Friday's retail sales report for February conflicted with the early March reading of consumer sentiment, leaving investors with little visibility. A snow filled February seems to also have contributed to fogging the view, and may have acted to influence the data in a manner not expected by logical minds.

Retail Sales Shine?

Retail sales were reported Friday for the snowy month of February. Logic prepared the senses for poor results, given the blizzards that smothered the East Coast and Northeast through the forgettable period. Logic placed its chips on the wrong bet though, while critical thinking might have prepared a few for the surprisingly positive data.

Retail sales rose 0.3%, and increased 0.8% when excluding auto sales. Economists were looking for a sales decline of 0.2% and no change, respectively. A great portion of the surprise was definitely due to the revision of January's data lower, to growth of just 0.1% (previously reported +0.5%). Four-tenths of the difference is explained by that revision alone, and sales might have declined in February otherwise.

The other tenth might be explained by pre-blizzard panicked buying and a false alarm snow storm warning that inspired shopping. This type of shopping occurs before every significant storm. As we all know by now, but perhaps economists who do not get out much miss, the store shelves empty before storms. Thus sales are front-end loaded through storms, but when storms don't show up, like one that didn't show up in New York City in February, well then sales get a clear and free boost. There simply was no snowed-in period for that particular snow-show. So New Yorkers and others went out to stock up ahead of the storm, but it never hit, which allowed them to continue living life normally in the days that followed; those were days they should have been snowed in.

Consumer Sentiment Sours

Perhaps the Consumer Sentiment Index, reported Friday by Reuters and the University of Michigan, paints a more accurate picture of the current situation then. Michigan's data indicated consumers lost confidence in early March. The index slipped to 72.5 in early March, down from 73.6 at the close of February. Economists guessed this data point wrong as well, as they forecast the index would stay put (based on Reuters' survey).

The most concerning component of the Sentiment Index was the 12-month economic outlook; that number declined from 80 to 74 in a matter of weeks. Americans are deeply concerned about the government's ability to fuel sustainable economic growth, with a labor situation that is dragging behind the economic ship.

For those of you who want to stay hopeful, there was some enthusing data within the retail sales report. Electronics & appliance stores saw a 3.7% sales rise; department stores experienced a 1.1% increase; and clothing & accessories stores posted a 0.6% gain. I attribute the 1.3% grocery store gain to the weather, and the only other realistic driver would be pricing in this segment anyway.

As we move forward, I do expect employment to slowly inch ahead, and I expect seasonal drivers to help spring sales over weak year ago comps. Also, Easter for both Orthodox and other Christians falls on the same day in April this year, which might slow March and boost April activity. Easter also fell in April in 2009, so there would be no impact to the year-over-year comparison.

Disclosure: No positions