Not surprisingly, May retail sales fall

Last month retail sales fell 1.2% according to the U.S. Commerce Department.  This compares to an expected increase of 0.2%.

Analysis: While the press is questioning the strength of the economic recovery because of the fall in retail sales, I am not.  The month of May saw the worst stock market performance since 1940.  Rightly, or wrongly, your average fellow citizen sees the performance of the financial markets, especially the Dow Jones Industrial Averages, as a harbinger of economic performance.  What’s more, they do adjust their spending based on the stock market performance.

Unfortunately, the generations that most actively invest still have as a part of their collective consciousness and unconsciousness the idea that the Great Depression of 1929 happened because of a stock market crash.  While patently untrue, this supposed causal connection still exists.

Another factor linking the stock market with consumer mood, and thus their spending, is that a large percentage of consumers have investments in the stock market.  Upon hearing that the stock market has declined they feel a loss of wealth, and thus of confidence.  Spending therefore dries up.

But did the stock market fall because of a big change in the U.S. economy?  NO.  The stock market primarily fell because of nervousness about those strangely un-cohesive Europeans and their inability to convince investors that they were showing up to take care of their problems.  So am I concerned by the drop in retail sales?  Sort of.

What we have here is a potential vicious circle.  The stock market declines because for non-U.S. economic reasons, leading to consumer fear.  The concurrent drop in retail sales leads to investor fear so they sell of their investments.  Consumers notice the drop in the market and get even more fearful.  And on and on.  However, economic data are mostly solidly positive.  That will change investor mood.  And Europe is paying attention…thank God.  That will change investor mood, too.

Importance grade: 6; I don’t consider today’s data to be indicative of anything other than the continued link of stock market performance with the Great Depression in the collective consciousness of your average Jane and Joe.

Jason