Retail Sales

Study Notes:

The Retail Sales report represents the total dollar amount of all sales occurring in retail or food establishments. The report provides details on total sales by many business types. This includes motor vehicle & parts dealers, furniture & home furnishing stores, gasoline stations, electronics & appliance stores, food and beverage stores, clothing stores, and others. Seasonality is an important factor of retail sales partially because of the holiday season; the fourth quarter of the year generally has the most sales. Retail Sales are calculated at the U.S. Census Bureau by collecting data from roughly 5,500 randomly sampled businesses. Data from businesses that don’t respond are estimated. The report is published on or around the 15th day of each month within the Advance Monthly Retail Trade Report press release at 8:30am. The Census provides retail sales data so that Congress, policymakers, business and community leaders have the information they need to make informed decisions that shape the economy.

The report is published because retail sales is an extremely important indicator of the economy’s health and more specifically conveys critical information about how the consumer is thinking or responding to an evolving economy. The U.S. depends heavily on the consumer to fuel the economy as consumption makes up about 70 percent of the size of the economy or GDP, which is high relative to the global average. Other economies may depend less on consumption and more on manufacturing like China, Thailand, Ireland, and Paraguay. Or they depend more on commodities like Saudi Arabia, United Arab Emirates, Russia, and Kuwait. In addition, retail sales are used as inputs to produce estimates for other important economic indicators. The Bureau of Economic Analysis uses these data for the U.S.’s Gross Domestic Product (GDP) estimates. The Bureau of Labor Statistics also uses retail sales data as inputs to its Producer Price Indices and in developing productivity measurements.

Elevated retail sales would show confidence among consumers that the economy is looking good. Weak readings could show caution on behalf of consumers and the potential for an economic slowdown. If retail sales are high, that benefits company revenues and allows companies and the economy to continue growing. This leads to increased employment, increased investment, increased loans, more tax revenue for governments and ultimately higher GDP. If retail sales fall in the U.S. like it did during the 2008 financial crisis and the COVID-19 recession, it will slow down the global economy and reflect through worse economic performance. The U.S. also depends on imports since the nation carries a trade deficit, meaning that the U.S. imports more than what is exported in dollar value. if U.S. consumers aren’t purchasing as many goods from abroad, international economies become stressed through less sales, which means less employment, less investment, less tax revenue, less economic activity and a plethora of more problems. The U.S. has the largest economy in the world, is the single largest importer in global trade and issues the world’s reserve currency, meaning that the U.S. dollar is the most stable and liquid form of exchange versus other currencies. If the U.S. economy weakens, the global economy generally weakens as well.

To forecast retail sales, we can look at economic indicators such as unemployment claims to see if layoffs risk hampering spending, consumer confidence to get a gauge of how consumers feel about the present and future, foot traffic, air passenger levels and fuel sales to see if consumers are moving around, and the weekly Redbook Retail Sales report since it leads the monthly retail sales report. In addition, we’d listen to the earnings calls and monitor the stock performance of some of the biggest companies for signs a consumer slowdown or expansion. Walmart, Amazon, Apple, Costco, Kroger, Home Depot, Bank of America, FedEx and others are some to pay attention to.

In general, when monetary policy is tight or interest rates are higher than average, consumers face higher costs to finance durable items such as cars, refrigerators and furniture. Monitoring consumer behavior by watching the Retail Sales report in response to changes in monetary policy is really important. Tighter policy can lead to weaker consumer spending and potentially recession.

Generally speaking, the market will drop more if retail sales are worse than expected and will rise more if it’s better than expected. More retail sales means more economic activity and an environment that will likely benefit stocks globally.

Tracking retail sales, for signs of an economic slowdown or economic expansion is important.

Additional Links

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