Consumer spending makes up roughly 70% of the United States’ gross domestic product so this report is a pretty huge deal.
Digging deeper, we see that retail sales makes up roughly a third of overall consumer spending. That said, we can say that the retail sales report is actually a good indicator of spending and growth, as it measures the trend in sales figures of the thousands of retail stores scattered all across the country.
Of course, we have to remember that retail sales analysis does have its shortcomings.
The report only measures how much moolah is spent on goods that can be found in department stores, electronic shops, car dealerships, gas stations, and restaurants. It doesn’t factor in the service industry, which includes things like air travel, professional medical care, or how much you pay your stylist down the street to fix your afro.
How is it measured?
The government sends out surveys to 5,000 retailers including both small and big ones. They are then asked to provide dollar values for their sales and end-of-month inventories. After these are collected and analyzed, the Census Bureau gives us an approximation of how much consumers spent during the month.
Difference between core and headline
You will notice that, aside from the headline retail sales figure, a core reading is also released. The main difference between them is that the headline figure includes automobile purchases while the core reading does not.
It is important to make the distinction because automobile purchases tend to be volatile and distort the underlying trend. For this reason, a lot of market junkies pay more attention to the core reading.
How do I interpret it?
Any figure higher than 0.0% means that consumer spending grew during the month while a reading below it would indicate that spending contracted.
How could the dollar react?
With all the talk about the Fed tapering, the dollar has been acting very sensitive to fundamentals these days. In other words, strong U.S. economic figures typically trigger dollar buying while weak U.S. data usually results in a sell-off.
