On Thursday we had retail sales released for the month of December and if taken at face value you could say the sales were down right lousy. Sales were announced falling by 1.2% in December–and more surprising was the fall of over 3.9% on internet sales.
Personally there is really little doubt in my mind that sales likely softened–with the wild trading in the stock markets during the month a decline in sales would be no great surprise.
On the other hand we are more likely to believe that while sales likely fell we believe they will be revised upward in the future.
So what does this mean to me? It is simply 1 data point out of literally hundreds that are published each month and we don’t react to 1 data point. BUT we do consider it a potential early warning and we have said time and time again that many companies that have issued income securities are “dicey” if we head toward recession. Many of the REITs are not strong–i.e. Ashford Hospitality with their debt/equity of almost 8. Additionally while it may be true that there have not been bankruptcies in the business development company (BDCs) arena most of these companies have been around for only 10-15 years and there is no doubt in my mind that the next recession will bring bankruptcies in this space.
For now we just watch–maybe just a little closer than before, to see what the follow up data in the next month brings. I will take no investment actions with this early, likely to be revised, data but I will be observing closely.