Here is a chart of the 3 month average of the monthly percent change in Real Retail Sales (click to enlarge):
source of data: FRB St. Louis
I use this chart to get a more detailed insight on the path of the economy. Since it is very accurate and quite correlated with the stock market I will be updating it frequently.
Notice how the series drops even during economic expansion periods and then usually bounces off the red horizontal line. We are in the middle of the same process now. The series started dropping, signaling some economic slowdown. The media has done more that its usual job to highlight this slowdown.
The question is whether the bounce that will follow the current slowdown will be as big as it should be in an economic expansion or it will be soft as the ones before the recent recession (circled in green). I am choosing the latter. I have drawn in purple a projected future path.
Also of note is that the circled bounces (late 07 and early 08) were accompanied by market rallies. Probably because during those bounces in retail sales the economic data came in better than expected. This would suggest that the market might rally in the coming months, a scenario that pleases the contrarian in me as the media pessimism on the economy is extremely high.
When exactly is this rally going to start? From what levels? Until I get those answers, I will call this the retails sales conundrum.
2 comments:
Nice work. From a chartist point of view you might be making a comparison that is 'apples to oranges' that of comparing the go-go years in an up market (07-8) an extreme optimistic period with a slight hangover ( in 08) to a very different period of time. Put trend lines on the tops and bottoms of you chart and see what you come up with. I am talking a LT view.
katzo7
Thanks for the observations katzo7.
Indeed using trendlines would yield some scary results.
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