The major stock market averages opened lower today on the some disappointing retail sales data (see below). The Dow is down 107 points and the SPX is down .2%. The consumer staples sector is down over 1% after a weak earnings report from Coca Cola (KO). Financials are down over 1%, and industrials are down .6%. This could be the consolidation we’ve been expecting after a sharp rally in January. Commodities are mixed in early trading. WTI crude oil is unchanged around $54/barrel. Bonds are modestly higher in price, lower in yield. Longer-term Treasury notes—as measured by iShares 20+ Year Treasury Bond ETF (TLT)—are up about .5% today. TLT is flat on the year, whereas corporate bond ETFs are mostly higher so far in 2019. As you might expect on a day when stock prices are falling, junk bonds are also weak.

US retail sales decelerated sharply in December. The year-over-year rate of growth fell to 2.3% from 4.1% in the prior month. In other words, the growth rate of US consumer spending fell from the top of the 5-year range, to the bottom. This caught economists completely by surprise and caused some to wonder aloud if the data are “suspect.” The circumstances of the report are a bit unique. The government shutdown delayed publication; typically by now, we’d be looking at January data. So the information is stale. In addition, other economic data that could either contradict or corroborate weak retail sales have been delayed as well. We do know, however, that this report conflicts with holiday shopping data collected by Corporate America. CNBC points out that Mastercard SpendingPulse said holiday shopping in November and December rose 5.1% from prior year levels. In addition, the CEO of Six Flags (SIX) said today in an interview that his company booked its highest-ever holiday park sales during the fourth quarter of 2018. He noted total park attendance grew 5% and revenue rose 9%. “We are not seeing a deceleration.” And we know that Amazon (AMZN) doesn’t believe consumer spending tanked. That said, traders will react to the headline and you can expect some stock market weakness in the near-term. The bears are going to pounce on this.

The Producer Price Index (PPI) decelerated to 2.0% year-over-year growth in January from 2.5% in the prior month. We’ve seen wholesale price inflation weaken substantially over the last six months, mostly because commodity prices plunged during the second half of 2018. Excluding food & energy, PPI is still running at 2.6%. As I mentioned yesterday, core consumer inflation is steady at 2.2%, and wage inflation is gradually accelerating. So while headlines suggest inflation is falling, that’s somewhat misleading.

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