When you get a hotter-than-expected reading on the Consumer Price Index (CPI), it means prices are going up at the consumer level. Easy enough to grasp. But what happens when you have rising prices but weaker-than-expected retail sales? This is where more of the stagflation argument comes into play. Quite simply, it is stagnant growth but with higher inflation.
The monthly retail sales were down by 0.3% at $492 billion on a seasonally adjusted basis for all items in January. The retails were flat excluding autos, but they were still down 0.2% if you back out autos and gasoline. Bloomberg had been looking for gains of 0.3% to 0.5% on all three readings.
24/7 Wall St. has covered each of the categories in detail, but the current trend that just cannot be ignored is perhaps that the case for a climate of stagflation can be made more easily than a month ago. 24/7 Wall St. had warned investors on Tuesday ahead of the CPI report:
… investors and economists better expect that the inflation reading will be hotter than normal. They also likely already are bracing for the financial media to be talking about whether the Federal Reserve is behind the curve on raising interest rates.
The long and short of the matter is that at least some of this retail sales report just doesn’t feel like it really adds up to what retailers have said through December and January. And this retail sales report may act to harm first-quarter expectations for stronger gross domestic product (GDP) since roughly two-thirds of GDP is tied to consumer spending.
And to add insult to injury, and which may question just how aggressive the holiday season really was, there were revisions lower in December: all sales flat versus 0.4% initially reported; ex-autos up 0.1% rather than the 0.4% initially reported; and ex-autos and gas flat versus a preliminary report of 0.4%.
Here is the real kicker: e-commerce sales were flat in January, and the stronger 1.2% growth in e-commerce sales in December was revised lower to just 0.5% growth.
Sales were up in department store venues, as well as in clothing stores and electronics stores. Grocery store sales were down, and negative trends were also seen in furniture stores and hardware stores. Restaurant sales were basically flat while gas station sales were up.
What stands out for January was the negative move in the financial markets did not come into play until the very end of January, and even then the selling pressure did not really accelerate until the first full week of February.
There is also another notion to consider, but one that gets much harder to explain in specifics. Seasonally adjusted figures aim to smooth over and account for the factors and abnormalities in each month’s economic readings. Unfortunately, those seasonal adjustments are not universally felt by consumers each step along the way.
So how should the Department of Commerce’s worst reading in 11 months of retail sales be interpreted? Uncharacteristically disappointing, almost to the point that the report almost felt wrong and ripe for a higher revision next month. Also, should we consider that the higher prices at the gas pump might have acted as a drain elsewhere? Perhaps, but the price of oil is already down over 10% from the peak of January.