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Looking the Retail Sales number that was reported today, you would think we took a page from the Chinese playbook – making up the numbers!

In January, after six straight months of declines, the Commerce Department said total retail sales rose 1% last month versus a revised 3% drop in sales in December. December sales were originally reported to have declined 2.7%. Nearly every rational person looks at this number with a high degree of skepticism. That being said, should it be dismissed?

The biggest aberration was in apparel purchases, as many specialty clothing chains reported big declines in their January same-store sales. It’s a foregone conclusion that the January number will be revised lower next month. However, even if it is revised down by 1%-2%, it still shows that the lights went out in December, but came back on in January.

The consumer is the lynchpin to stabilizing the market. Yes, the year-over-year sales statistic is horrific and will be for some time. The month-to month trend points to a bottoming process and not a continued acceleration to the downside. Yesterday, while sitting on the hot seat in Washington, all of the bankers that make consumer loans disclosed increased loan activity in the month of December and I assume will continue in January. The U.S. financial institutions that took TARP money are being forced to loan money to consumers. If the banks are lending again, was January retail sales number an aberration? The politics of the TARP and the stimulus will have a way of working themselves out to the benefit of the consumer, and ultimately, the market.

Howard W. Penney
Managing Director