Retail Sales

This is the monthly measurement of all goods sold by retailers based on a sampling of different categories of stores across the country. The statistics do not include the sale of services.

How important is it?

This indicator is very important to many investors as it portrays the degree of consumer confidence. This can clearly give the health status of the economy on a month-to-month basis. Since it details the amounts of moneys spent on all sorts of consumer goods it is likely to be a very accurate measure of the economic direction by sector basis, as one can clearly know which products retailed better than the other did. Such information can be very influential in making investment decisions. This is because an investor would only need to look at the products that seem to be recording high sales to know that it has great demands. It also breaks down the statistics from state to state giving investors the ability to know what products do well in which geographical locations across the states. Retail sales are an important economic indicator because consumer spending drives much of the economy. Think of all of the people and companies involved in production, distribution, and selling the goods you use on a daily basis. This sector influences most of the other sectors.

How is it computed?

The computation of this indicator actually lists two segments. The first is Retail Sales that includes all sales of goods carried out in the previous month. The second number includes Retail Sales Ex-Auto meaning all the retail sales of the previous month but with out the inclusion of the sales generated from the automobile industry The reason that the auto industry is quite subject to seasonal fluctuations and this may skew the overall figure.

How does it affect the forex trade?

Retail sales are the real indicator of the economic heartbeat. High retail sales influence many other economic activities in a very direct manner. Increase in retail sales will trigger the increase in factory production. Production may require more raw materials or even machinery, which may need to be imported depending on their source. All these transactions are likely to have an influence on the forex rates. Think of a situation where the factories may import more equipment for production. Such a situation may create a temporary trade imbalance or deficit, which in turn is likely to force the Federal Reserve Bank to adjust its rates to counter the impact of the high imports. If the goods produced do not balance the trade deficit then the country may fall short on forex currency. Supposing most of the sales have gone outside the states, then the country would be having good foreign exchange reserves and the economy would be on great growth path. With great retail sales, most investors will be encouraged to increase their investments, a factor that may lead to higher borrowing for investment purposes. This will likely strengthen the local currency even further.

Impact on stock market

The number crunchers on Wall Street usually come up with their own estimations even before the Census Bureau issues the retail sales report. That number is usually close. However, if the street estimates and the actual report differ significantly, you can certainly expect the market to react dramatically. This is because investors usually strategize depending on their perceptions of likely outcomes. if the perceptions turn out to be very wrong, investors are very swift at trying to correct mistakes that they may have made basing on their estimates. This scenario is likely to result in great changes in stock prices as investors hurriedly dispose of holdings and struggle to buy others, which may be perceived to have better growth potential. If retail sales drop significantly, the investors always know that they have made some loses. Such circumstances call for a review of the strategy. In the worst-case scenario, investors may even decide to exit the economy in search of better environments leading to a massive decline in the sector’s economic value. If such trends persist for some time, the economy is certainly headed for troubled times ahead unless some drastic stimulus action is taken to salvage the situation before it gets out of hand.

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