This past weekend, I drove out to a local Borders bookstore to take advantage of its going-out-of-business sale. As I joined the throng of former English majors rummaging through piles of marked down old classics, I got wind of a heated conversation among some patrons debating why the store was closing in the first place. The number one reason I overheard was not -- as I expected -- the craze for wireless reading devices like the Kindle.
No, it was the rising cost of gasoline.
You might be nodding your head in agreement. After all, mainstream economic wisdom states that rising gas prices are the death knell of retailers. Case in point, the slew of recent news items below:
- "In an economy that relies on oil, gas prices affect everybody. For Americans already facing tough times it's an added burden." (Reuters)
- "Surging gas prices have cast a pall over the retail sector. All told, with gasoline prices expected to be up, there is likely to be some pullback in sales as a result." (CNN Money)
- "Gas prices threaten retail sales. Higher fuel prices will lead shoppers to consolidate trips, meaning fewer impulse purchases." (Associated Press)
There's just one problem with this seemingly sound logic: Namely, there is no consistent inverse correlation between high fuel costs and falling retail purchases.
Here, the two charts below provide this visual wake-up call. The first one illustrates the Year-Over-Year U.S. Retail Chain Store Sales Index since 1993. And the second one shows the average cost of gas prices over the last three decades.
Check out the action since 2009: Both indexes have been rising together.
"High gas prices hurt retail sales" is just one of the many misconceptions born of the flawed "news-moves-markets" logic of "fundamental" analysis. As EWI president summarizes it, "it feels right; it must be right." Why so few people actually bother to check the facts is a mystery.
The Elliott Wave Principle shows you that market behavior is driven by the internal measure of social mood fluctuations, not external stimuli.