How Retail Sales Data Prove Stimulus is Exhausted

August 17, 2021, 09:38 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

How Retail Sales Data Prove Stimulus is Exhausted

• The free money associated with stimulus has been exhausted.
• Retail spending is now coming down to more reasonable levels.
• Today’s retail sales data supports recent changes to inflation pressures too.
• The Russell 2000 fell like Retail Sales and Inflation Data, but it came first.
• The government allowed our country to go into deeper debt for a temporary boost in retail sales, and there was very little reward from that effort now that the dust has settled.

Consumers have received free money from the government during the pandemic, and many have used that money to make exorbitant purchases.  When the last round of checks were issued our Random Walk evidenced lines around the block to get into stores like Louis Vuitton, and those lines were populated by a demographic who did not seem compatible with the price points.

Of course many citizens really needed the money, but many of those who did not made purchases that would have been unreasonable otherwise.  This caused a surge in retail spending that is now being reversed. 

Retail spending is now coming down to more reasonable levels.

With that, the stimulus checks also influenced inflation readings higher.  The buyers who were using stimulus checks did not care as much about price, because they did not earn the money they were spending.  If you don’t work for it, it often does not mean as much.

Not surprisingly, as the free money from stimulus checks is exhausted (it only has a very short half-life) the influence on retail sales dissolve, and the inflation pressures abate.  This is exactly what we are seeing in the recent data. 

Today’s retail sales data supports recent changes to inflation pressures too.

Stimulus checks not only influenced spending and inflation, but they also influenced the stock market.  Many citizens who did not need the money and who did not choose to spend it made investments into the stock market instead.  This was tangible at the time, and it did not require a Random Walk.

Arguably, the free money allowed MEME conditions in stocks like GameStop (NYSE: GME) and AMC Entertainment Holdings (NYSE: AMC) to exist, and it strongly influenced the Russell 2000 Index (INDEXRUSSELL: RUT).  Smaller investors often are attracted to small cap stocks, like those in the Russell 2000, so not unlike prices and inflation pressures associated with stimulus checks, the Russell 2000 was an initial beneficiary as well, but that’s not the only correlation.

The Russell 2000 fell like Retail Sales and Inflation Data, but it came first.

The Russell 2000 fell by as much as 10% after the retail buying surge associated with the last stimulus checks was finished.  This happened as the other markets, like the S&P 500 INDEX (INDEXSP: .INX), hit all time highs over and over.  The decline in the Russell 2000 was a tell, it came first because stocks act in real time and the data is not delayed, and it told us that the retail investor was done.  Now the new Retail Sales and Inflation data support the notion that the benefits of that free money program are officially dissolved.

The government allowed our country to go into deeper debt for a temporary boost in retail sales, and there was very little reward from that effort now that the dust has settled.

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