Markets Talk Themselves Out Of Belief In Brutal Retail Numbers

Overall retail sales fell 1.2% in December from November, according to the Commerce Department. That’s the worst drop in nine years. Economists surveyed by Bloomberg had projected a 0.1% gain in retail sales.

Out of the gate stocks fell today on the news with the Standard & Poor’s 500 down 0.77% at 9:46 a.m. New York time.

But as Wall Street pushed back on the report–with some arguing that the data had no credibility–stocks recovered. As of 2 p.m. the S&P 500 was flat. The Dow Jones Industrials were down just 0.07% and the NASDAQ Composite and the Russell 2000 were both up, 0.27% and 0.33%, respectively. Gold fell 0.05% on the Comex to $1314.40 an ounce. U.S. crude benchmark West Texas Intermediate was ahead 1.09% to $54.49 a barrel and international benchmark Brent crude climbed 1.40% to $64.50 a barrel.

The trouble with this morning’s retail report from the Commerce Department is, according to Wall Street, the it contradicts reports from retailers themselves of a good holiday selling season and from online retailers of a bumper period. The Commerce data show online sales down 3.9% month over month, but Amazon, the bellwether of online sales, reported an 18% gain in net sales in North America in the fourth quarter.

The problem with Wall Street skepticism about the report is that no one has a convincing explanation for why the data might be wrong. Weather was fine. The shutdown didn’t bite until January. Seasonal adjustments don’t usually throw off figures by this large a margin.

“Almost everyone seems to be dismissing the out-sized decline and writing it off as noise,” Omair Sharif, senior U.S. economist at Societe Generale, wrote in a note on Thursday, Bloomberg reported this morning. “It’s certainly possible that we see an upward revision when the January report is released, but it’s not clear to me that we should dismiss this report altogether, and none of what I’ve seen/heard about why today’s report is ‘wrong’ holds much water.”

And some economists point to indicators that might explain the data. Michelle Meyer, head of U.S. economics at Bank of America Corp., told Bloomberg that the bank’s customer credit-card and debit-card data indicated some December weakness and that  “January looks pretty soft as well.”

The National Retail Federation said Thursday that it estimates U.S. holiday retail sales in the final two months of the year grew 2.9% year over year. Not negative but less than the 4.3% to 4.8% growth it had projected.

The December numbers, moreover, don’t portend good things when retail stores report in the next few weeks for January and February. Wal-Mart (WMT), for example, reports its fourth quarter earnings and revenue next week. Macy’s (M), which also reports in February, has already warned that sales “weakened in the mid-December period and did not return to expected patterns until the week of Christmas.”