A large number of traditional brick-and-mortar retailers have gotten hit in recent weeks and months on weak earnings reports. Notable names include Macy's, Sears, Target, Nordstrom, Office Depot, Kohls, Gap, Staples, and JC Penney.
This is important because many view retail as an important canary in the coalmine when it comes to a looming recession as consumers pull back on certain discretionary items like apparel.
In a recent interview with Financial Sense Newshour, Gary Dorsch, Editor of Global Money Trends magazine, argued that weakness in the brick-and-mortar retail space has less reliability in signalling recession given the structural change in consumer spending habits to e-commerce, which has gone from less than 1% of total sales in 2000 to 7.8% as of Q1 2016.
Given the continued growth of e-commerce and, of course, Amazon, which just reached a new all-time high, Dorsch cautioned listeners to view the recent brick-and-mortar decline as an industry-specific disruption. That being said, if Amazon were to suffer a sharp downturn on weak sales, that would raise a major red flag in his mind.
All in all, for Dorsch, the larger issue at stake is how the economy will hold up with higher interest rates.
“We’re going to see the true face of the market once the Fed starts to normalize monetary policy,” he said. “It’s remarkable that we’ve now had near-zero-percent interest rates for seven-and-a-half years, and a lot of people have become brainwashed to believe that’s the new normal. But it’s not normal—it’s very abnormal.”