There was a lot of chatter yesterday on several broadcast financial shows about the supposedly strong January retail sales report issued yesterday morning by the U.S. Department of Commerce.
According to the Commerce Department, total retail sales (which includes the sales of gasoline) rose 3.9 percent during January compared to the same month a year ago.
However, a closer review of the details in the retail sales report paints a different picture.
Although total retail sales managed to grow during January, they did so at a much slower pace than during the previous three months. For example, total retail sales rose by 4.7 percent, on average, during the three-month period ended Dec. 31, 2007.
In fact, total retail sales have been growing at a slower pace over the past two years and rebounded very modestly during January (see chart).
On an inflation-adjusted basis, my research shows that total retail sales actually fell during January. Meanwhile, the recent trend in sales of major categories of consumer goods, like furniture, consumer electronics equipment, appliances, clothing, sporting goods and general merchandise may have declined during January (data for these categories of retail sales is not yet available).
Meanwhile, U.S. automobile sales declined during January for the eight month in a row.
Looking forward, my research strongly indicates that retail sales will continue to slow significantly during the months ahead.
Commercial banks are continuing to tighten their lending standards, home values are continuing to decline and approximately 75 percent to 80 percent of U.S. consumers have stated that they plan to use any tax rebates this coming May (from the Bush Administration's fiscal stimulus plan) to pay down debt rather than to spend it on consumer goods and services.
The most interesting fact about yesterday's retail sales report, however, is that I heard very little discussion about the steps taken by retailers to grow their sales during January.
All types of retailers significantly reduced prices during January to entice shoppers into taking slow-selling merchandise off their shelves. As a result of those price discounts, I expect most retailers to report a sharp decline in the profits for the first quarter of this year.
As I've stated in the past, stock prices generally follow the path of corporate profits.
I urge you to not get too excited about today's retail sales report. If you're interested in learning more about my analysis of the latest economic developments and for information on how to protect your capital during the currently turbulent investment environment, Click here now.
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