23) Economic Indicators: Retail Sales Report

What It Is

The Retail Sales Report is an indicator that follows the dollar value of merchandise sold within the retail trade. Samples are taken from companies that engage in selling products to end-consumers. The report is closely monitored by economists and investors.

Basic Information

The retail sales report includes in its data sample both fixed point-of-sale businesses and non-store retailers. The survey is not limited to large retailers alone. Stores as big as Wal-mart down to “mom and pop” businesses are taken into account in the survey. The report has two main components: total sales figures and ex-autos.

The report is considered a coincident indicator, and is a good measure of the performance of the retail industry and the price level activity in general. The data covered is the previous month’s sales. Consumer spending accounts for about two-thirds of the total GDP, so activity in the retail industry reflects the current conditions of the economy, and as such, Wall street watchers and the Conference Review Board are very interested in it. The retail sales report is also considered a very important pre-inflationary indicator.

How the Report Is Valuable

Information in the Retail Sales Report can cause volatility in the stock market that is above normal. It is seen by investors as a predictor of inflation causing them to consider the possibility of Fed rate cuts or hikes. For example, to try to prevent inflation, the Fed will extend a short-term increase in interest rates in case there is sharp rise in retail sales in the middle of a business cycle. When this happens, investors normally sell bonds causing yields to go up. This will in turn cause problems for stocks since inflation causes decreased future cash flows for companies.

Conversely, a slow activity in the retail market means that consumers are not spending too much and is an indicator for a recession.

Perhaps the most important thing that the report is used for is to measure its reported figure against the consensus number or “street number”. Results that are higher than exepected can provoke investors to unload their stocks and bonds in fear of inflation.

Things to Watch Out For

The released data covers all sectors of the retail industry which gives investors an idea of how their investments (in retail stocks) are performing, regardless of the state of the overall market. Retail companies, because of this, become extremely volatile when the report is released to the public.

What the report does not include is retail services, therefore not all retail activity is truly covered. Retails sales data can vary highly from one month to another making it difficult to predict a trend.

Despite this, retail sales is still a very important indicator of the performance of the economy, and it’s detailed information on the retail industry has a large influence on the market.