Retail sales tumbled in December, plunging by 2.7% from a month earlier. Naturally, the stock market cratered on January 14, the date of the data release, with the Dow Jones index sliding nearly 250 points and the S&P 500 off 29 points, or 3.4%
Two thoughts come to mind.
First, while the December sales figures were indeed ugly, one must remember that they are reported in nominal, not real (price adjusted), dollars. That means the 20%-plus dive in gasoline prices from November to December, along with widespread discounting across the rest of the retail landscape, had an outsized negative impact on the nominal value of goods sold during the month. The real value, or volume, of goods sold fell much less dramatically. Take gasoline for example. Preliminary data from the Department of Energy suggest that gasoline consumption actually rose in December. In fact, taking gas stations' sales out of the equation erases more than half of the month's decline in total retail sales.
Second, extreme stock market reactions to news of this sort have grown ridiculous. Yes, retailers managed to exceed even the already low expectations upon which short term stock price movements are partially based. But, c'mon – it's pretty well understood by now that we're in the teeth of a major consumer led recession. Was a hideous holiday shopping report really that much of a surprise to anyone? If stocks continue to tank with each new "surprise" – and there are likely to be more to come over the next several months – the Dow is going to find itself in the same place as Chairman Bernanke's interest rate: flirting with the zero bound.