Understanding the Retail Sales

Retail sales measure the total number of sales at retail stores that sell goods and services to consumers.

Retail sales are a leading indicator of consumer spending trends.

Since consumer spending accounts for about two-thirds of the US GDP, it is a key factor in measuring economic growth.

Therefore, the total number of retail sales is often used to analyze the country's economic situation.

The accelerated retail sales growth suggests consumers have spent more and the economy is strong.

And a slowdown in retail sales growth indicates consumers have reduced their spending and the economy is declining.

The US Census Bureau releases the retail sales report at 8:30 AM ET around the 13th of every month.

The report shows the total sales in the prior month and the percentage change from the last report.

Since the monthly data is often revised, the three-month moving average of the monthly percent changes can give a more accurate picture of the consumer spending trend.

The report also includes the year-over-year change in sales to account for the seasonality of consumer-based retail. For example, 20% of the total sales in the country occur during Christmas and New Year holidays.

Retail sales data releases may have significant impacts on the financial markets.

For stocks, higher sales are good news for shareholders of retail companies because it indicates higher earnings. Healthy retail sales figures elicit positive movements in equity markets and consumer-driven sectors.

Also, investors may spot specific investment opportunities by reading retail sales data carefully. For example, investors may learn something from strong apparel sales and weak auto sales.

For US dollars, a higher-than-expected reading could be positive, and a lower-than-expected reading could be negative.

For bonds, the main concern is whether economic growth will become excessive and lead to inflation.

If the data makes inflation expectations rise sharply, bond prices usually fall, and vice versa.

The financial news media usually report two monthly retail sales numbers: retail sales and core retail sales.

Core retail sales exclude spending on automobiles, gasoline, building materials, and food services. Prices for these products tend to be more volatile and skew the overall number.

Most economists prefer to analyze core retail sales. But for investors, both numbers are important.