US retail sales strong

A lot of data out of the USA last night and stocks clung to Retail Sales to rebound from the previous day’s losses.

Retail Sales, not adjusted for inflation it must be said, were up a very strong 3% in January. Department store sales were particularly strong suggesting some post season sales shopping was at play. It is worth noting December retail sales fell 1.1%.

Other data was a little more mixed. The New York Fed Empire Manufacturing Index remained in contraction, as it has for nine of the past twelve months.  US Home Builder Sentiment rose on the month, but overall continues to languish near Covid lows.

The big concern was that Industrial Output in the US was flat at 0, and has been flat or declining for four months in a row now.

While the flashy Retail Sales number looks good and is, it may well have been a Department Stores sales flash in the pan. Then, we have continued evidence of deep structural barriers to growth still existing in the economy via Industrial Output and the Empire reading.

It was certainly a nice moment for the bulls at the close in New York, but during the day we again saw significant institutional selling that sold rallies and kept the market heavy overall. Nevertheless, that typical flat afternoon buying did take the market higher fro a reasonable close.

With much of the big ticket data releases now out of the way for the moment, we are likely to get a clearer picture of the true underlying fundamental trend within a few days. At the moment, a pure price action approach suggests this is a consolidation phase capable of setting new highs. When we look at the overall fundamental picture, Retail Sales is not in fact reflective, on one month’s data, of the state of the US economy. Especially, as other data remains at suppressed activity levels.

Bring in the early signs of surprise inflation re-acceleration, and the one thing we can be certain of, is further possibly sustained rate hikes by the Fed. Is the economy really in a position to withstand further hikes? Very probably not.

A good look on the day, but maintaining a posture of caution would seem appropriate.