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Real Reason For Stock Selloff Is Not Retail Sales

Retail Sales Not Seasonally Adjusted- Click to enlarge

The market sold off today ostensibly because of the lousy retail sales headline number, or at least so the media said. The headline seasonally adjusted number for retail sales was down 0.3%. While the consensus expectation was for a 0.2% decline, the bigger disappointment appeared to lie in retail sales ex auto, which came in at -0.2% versus a consensus expectation of +0.3%. Even with the miss, the market’s big selloff seems way out of proportion with that. Something else is going on– the end of the US oil and gas boom.

As for retail sales, the headline number is flat out wrong. It’s reported on a seasonally adjusted (SA) basis, and the SA factor has led to a misleading result this month. Looking at the not seasonally adjusted actual data, it’s clear that September was no worse than trend, and in fact on a year to year basis sales are accelerating. The year to year rate of increase is now at its highest point since July 2013. If traders think that this selloff is about retail sales, they are being misled in more ways than one.

Retail Sales Not Seasonally Adjusted- Click to enlarge
Retail Sales Not Seasonally Adjusted- Click to enlarge

I think its an issue of the collapsing price of energy and the wave of liquidation that is causing. It’s a simple matter of supply and demand. The energy boom, fed by cheap and abundant credit, has created so much excess supply and excess capacity in the face of weak worldwide demand that it has sown the seeds of its own destruction.


US Oil and Gas Production - Click to enlarge
US Oil and Gas Production – Click to enlarge
US Oil and Gas Production Capacity- Click to enlarge
US Oil and Gas Production Capacity- Click to enlarge

Energy development has been the engine of growth in the US economy that pushed its growth rate past that of its peers. The collapse of energy prices creates a ripple effect that spreads throughout world markets as large leveraged speculators are forced to liquidate any assets they can. That’s more likely the proximate cause of this selloff than any misconceptions about retail sales.

With energy development the lead sled dog of whatever real economic growth there’s been in the past 5 years, the pressure of the energy price collapse could spell the destruction of the interlocked world financial and economic systems. By the standard of making lower intermediate term highs and lower intermediate term lows, Japan and European markets have already been in bear markets for weeks. Buttressed by the fact of it being the Last Ponzi Game Standing the US has held out a little longer, but that won’t last.  The US will follow the rest of the world down.

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