Even though retail sales decreased 0.2 percent last month, the US dollar skyrocketed on the report because excluding autos, sales actually increased 0.5 percent. Interestingly enough, despite the rise in gasoline prices, gas station receipts actually fell. This suggests that Americans are driving less and buying fewer cars. This weekend, the NY Times reported that gas prices are sending a surge of riders to mass transit and the details of the retail sales report confirms that. I expect the Metro North trains to get even more packed. Consumers did increase their spending on building materials, electronics and clothing.

As indicated in my retail sales preview yesterday, earnings have increased for many discount retailers and there were many reasons to believe that retail sales was not exceptionally weak in April:

1. The International Council of Shopping Centers (ICSC) reported a 3.6 percent increase in chain store sales
2. Strong earnings have been reported by discounters such as Wal-Mart, Costco and Kohl’s.
2. SpendingPulse, the retail data service of MasterCard Advisors reported 0.1 percent rise in spending

According to Ken Perkins of Retail Metrics Inc, April was the best month for retailers since November. Weak job growth does not always translate into weak consumer spending. In October 2001, when non-farm payrolls dropped 325k, retail sales actually jumped 6.6 percent. Retail sales can be very volatile on a month to month basis.

Even though the numbers give traders some reason to be dollar bullish, consumer spending still remains vulnerable. Therefore don’t expect too much from the dollar rally.