Consumer spending makes up almost 70% of US GDP, making retail sales an excellent economic indicator. The Retail Sales Index is a measure that tracks consumer demand for finished goods. The goods and services have reached the end of the supply chain, which begins with the manufacturer and ends with the retailer. Retail sales are measured by durable and short-term goods purchased over a period of time. Retail stores include conventional stores such as Target, Macy’s, and others. This also includes online stores such as Amazon.
The report is created from receipts provided by participating retailers chosen at random. The report is expressed in millions of dollars and as a percentage change from previous months, and the data is divided into a wide variety of retailer categories. Sales are classified by establishment type, not by product type.
The US Retail Sales are reported monthly by the US Census Bureau. And two reports are published at once Retail Sales and Core Retail Sales. The Core report does not consider sales of automobiles, gasoline, building materials, and food because prices are changing very quickly and distort the data.
The Retail Sales report helps analysts and investors assess the state of the economy. A considerable advantage of the report is that it provides precise data about which industries and products consumers spend most of their money on. Traders consider the retail sales report one of the most useful economic indicators with a wide range of uses for different asset markets.
How to read the Retail Sales data?
Healthy Retail Sales figures usually cause positive changes in stock markets. Higher sales are good news for retail shareholders because it means higher earnings. It is also necessary to evaluate the dynamics of Retail Sales from month to month. If the data rises, it is positive and good for the economy and the stock market. If the month-to-month trend is negative, it is bad for the economy and stock indices.
At the moment the news is published, traders need to compare the actual value with the predicted one. If actual data is better than expected, it is good for the currency. Conversely, if retail sales are below expectations, it is negative.
Let’s look at a concrete example. The monthly GDP report was released in the United States last Friday (July 15). Published data was better than analysts’ forecasts and higher than last month’s figures. And even though the US Dollar Index fell on Friday at the end of the day, after the data release, the dollar showed good growth momentum. Of course, trading the news is not the best strategy, and such data should be considered in the context of other important economic indicators. But to give you an example, we showed how traders react to certain economic data at the moment of its publication.
