Retail Sales Release – The Dollar Value of Merchandise Sold

The retail sales report is released by the U.S. Census Bureau every month on the 13th day, or on the nearest date if the 13th is a holiday. The report covers the previous month’s developments, and is anticipated eagerly by both economists and traders.

The data included in the release is calculated from the dollar-value of merchandise sold by a sampling of point-of-sale businesses, and other non-store retailers such mail catalogues and vending machines. The Census Bureau sends out questionnaires to approximately 5000 firms across the U.S. in order to measure the retail sales volume which corresponds to about 65 percent of the total sales estimate. The data is not adjusted for those firms which do not respond to the questionnaire. Also, due to the small sampling size, there is a significant sampling error involved in the numbers released with the report.

Since consumer spending consistently makes up about two-thirds of economic activity in the U.S., the retail sales data can shed light on future trends in the economy, and the policy decisions of the U.S. Federal Reserve, and by extension, on stock, bond and currency prices. A disappointing retail sales release is often greeted with a sell-off in stocks and falling yields and rising prices in the bond market. The reaction of the forex market can be unpredictable, but an expectation that the Federal Reserve cannot raise rates will result in a sell-off in the U.S. dollar as well, (the opposite is also true, of course).

Components of the Report

The report provides the year to data total change on retail sales volume in dollar value, in addition to statistics on monthly changes. The retail sales data is broken down into the following sectors:

Motor Vehicle and parts dealers: This item includes all new and used car sales, along with sales at accessories, parts, and tire stores. Furniture and Home furnishings stores: Including home decoration, such as paint, but not including repairs and similar items. Electronics and Appliance Stores: Stating the volume of sales of TV sets, washing machines, and others.

Building materials, and related items: The item includes building items sales at retail outlets. Food and beverage stores: This group includes sales data from grocery stores, and beverage stores, but does not include the sales of restaurants, or similar firms. Health stores: This category provides data on the sales of drug stores and pharmacies, but does not report on sales of hospitals or similar health care establishments. Gasoline stations: This item records the sales of fuel at gasoline stations. Apparel Stores: Including the sales of shoes, and items of clothing. Recreation and sports stores: This item only includes stores where actual DVDs, sports items, and similar goods are sold, excluding the sales of movie theatres, and similar public venues. General Merchandise Stores: Reports on the sales of department stores and discount retailers of large and small size. Food services: This category measures the sales of restaurants and drinking places.

On examining the above groups we note that the retail sales figure excludes a large number of firms that do not supply goods to customers. Establishments like hotels, movie theatres, hospitals, and similar service providing companies do not report sales data to the census bureau, and are therefore excluded from the released data. Since the services sector constitutes about 70-75 percent of the U.S. economy, the retail sales data is far from presenting a complete picture of consumer spending in the nation. Along with the sampling error involved, the value of the report in terms of capturing tendencies in consumer behavior is limited.

Evaluation of the Retail Sales Data

In spite of a number of pitfalls involved in the collection and formulation of the retail sales release, traders attach a high degree of importance to the retail sales release, due to the crucial role played by the consumer in the U.S. economy.

Business Cycle

A robust retail sales release will alert the Federal Reserve to the inflationary potential of a growing economy, and will alert the market to the possibility of future rate rises. A weak retail sales number, meanwhile, will point out the possibility of future weakness in consumer weakness, with widespread implications for other sectors of the economy. In consequence, the Federal Reserve may consider lowering rates to help consumers borrow on better terms, and feel more confident in order to spend more. The business cycle is closely related to these interest rate policy decisions of the central bank, and as such, investors attach great significance to the retail sales release.

Although the release does not include data on most services items, in most cases sales of services-based industries depend on the purchase of goods to create new markets and demand. So the retail sales data has some (but not great) value as an indicator of future economic activity.

Stock Market

The retail sales data is always exciting for the stock market due to the importance of consumer spending for the overall economy. The report itself is not very reliable, but it does create a lot of excitement and volatility for stocks traders. Because of its role in directing the interest rate policies of the Federal Reserve, the retail sales data is crucial for the future of stock markets around the world.

Consumer’s Financial Health

Analysts can use the information present in this report to gain some insight into both the consumer’s confidence, and his financial health. Especially in conjunction with the consumer credit data provided by the Federal Reserve, the retail sales release can be helpful in creating the picture on consumer spending.

Conclusion

In short, although it is not exceptionally reliable, and although it doesn’t present a comprehensive picture of the consumer’s activities, the retail sales data is popular with traders as a result of its relationship with the word “consumer”. Traders who prefer a volatile atmosphere in trading can make use of this report’s release dates for active trading, and long-term traders can use the reports contents for better analysis of the consumer’s behavior.

Chris Lee

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