Retail sales in February jumped more than expected last week. The sectors
that contributed to that increase were electronics, furniture and clothing.
Since each of these sectors is attributed to discretionary spending it was
encouraging that consumers had begun to spend again. The following charts
illustrate the divergence from the three month trend for each of the
contributing sectors.
One possible explanation for the uptick in retail sales was that retailers
finally found the discounted price that attracted consumers. Moreover, the
previous 3 months that the 3 month trend is calculated from, included the weak
holiday season and the heavy inventory discounting that usually occurs in
January and February. The test of this hypothesis would come with the release of
industrial production and capacity utilization. If retailers felt the increase
in sales was sustainable they would order more product, resulting in an
increased capacity utilization at manufacturers.
On Monday, capacity utilization was released and without exception, capacity
utilization decreased for every sector that showed increased retail sales. The
implication is the sales that retailers experienced were not enough to warrant
new orders. As speculated, it was simply a matter of reducing inventory to match
reduced demand.
Disclosure: I am short RTH.