Be Wary of Friday’s Retail Report

As we anticipate the pattern of a Monday Pump up at the open, consider that a lot of positive excitement last week came from a positive retail report on Friday. This led to gushing that consumer spending was now likely the fastest in three years, and upwards revisions in GDP forecasts for Q1 to 3.1% from 2.7%. The V is on! We’re saved!

This premature exaggeration could lead to a flurry of buy orders over the weekend. Yet consider:

You wonder how a month of blizzards and bad Toyota news could lead to a good report. Although I am not a conspiracy guy, and tend to blame purported manipulations on incompetence, this report looks an awful like we have a rolling manipulation of data, with positive reports and later revisions. Expect Feb to be revised down – to make March look better!

The trend over the last three months is a 1.2% annual rate of growth (0.7% ex gasoline). Weak. Hard to see how that supports a 3% or higher annual GDP increase, let alone the close-to-6% from Q4.

Worse, in inflation-adjusted real terms, retail is down although trending as if bottoming: “[W]e are in the recovery phase, i.e. declines have stopped [but] this phase is very anemic, kind of like a patient on life support.” This chart shows real retail (orange), a twelve-month moving average (black), and an extrapolation (blue) as if the Great Recession had not occurred:

A lot of retail experts gushed with excitement on Friday. Maybe the experts are out of touch with reality? Especially because Peak Stimulus is rolling over. if so, the downside surprise in a few months could be shocking. A “gap and crap”, on Monday, as Mish predicts, might presage a gap & crap quarter in markets.

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About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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