Was Yesterday's Retail Sales Figure As Bad As The Market Would Have You Believe?

On Wednesday, U.S. retail sales data surprised analysts by falling to its lowest level in 11 months.

The figure helped push markets even lower as investors began to worry that the U.S. economy wasn’t quite as strong as they'd believed.

Why The Panic?

The figure showed that sales at retailers and restaurants had fallen 0.9 percent in December, much more than the 0.1 percent analysts had expected. Even excluding gas station sales, thus stripping out sales directly affected by the drop in crude prices, sales in the U.S. were down.

For that reason, markets began to panic as most had expected to see savings at the pump translate into more purchasing power. However that was not the case; instead, the numbers suggested that consumers were tightening their purse strings in response to what they saw as an uncertain future.

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The worse-than-expected retail sales report also caused many economists to trim their 2014 GDP estimates to between 3.0 and 3.4 percent, and lower their expectations for the upcoming consumer spending report for the fourth quarter.

Revised forecasts did little to boost confidence and left markets to continue declining.

Are Markets Overreacting?

While the figure was concerning, some analysts say that the lower-than-expected numbers can be explained by technical factors like seasonal adjustments. If that is the case, there could be a revision to the data on its way in the coming months.

Many are also expecting a poor December reading to be offset by a rebound in January.

The labor market has been steadily improving in the US and consumer confidence reports have been positive, so most are expecting those factors to continue driving consumer spending despite worries about commodities and struggling economies outside the U.S.