The retail sales announcement reports in-store sales as well as catalog and other out-of-store sales for durable and non-durable goods. This report provides data on the month-over-month and year-over-year changes in retail sales. Automobile sales are reported separately due to their high sticker price which can add extra volatility to the data. The outline of the report is broken down to different groups such as food and beverages, clothing, and automobiles. Retail sales is the primary gauge of consumer spending, which accounts for almost two-third of U.S. GDP.
As retail sales are subject to month-to-month variability, it is recommended to follow the moving average rather than just the latest one month data in order to get a more accurate picture of the consumer spending trend. Economists and financial market participants also exclude auto sales while monitoring retail sales, mainly because they fluctuate more than overall retail sales. In addition, one should also pay attention to changes in food and energy prices which could affect two components among nondurable goods stores: food stores and gasoline service stations. If there's a sharp decline in food or energy prices, this could lead to declines in store sales which are due to price, not volume. In this case, real sales could actually be stronger than nominal dollar sales.
The retail sales data is considered one of the more timely indicators for consumer spending as the data is only few weeks old. Consumer spending accounts for more than two-thirds of the economy, therefore it is indicative of the general health of the economy. Retail sales figures are vital to stock investors, especially to those who invest in retail companies like Macy's and Kohl's (KSS). Rising retail sales figures mean strong economic growth, and that is good news for the stock markets. Declining retail sales figures can trigger a recession because the government's tax revenues will reduced and company's profits will drop.
As for bond markets, the concern is more of whether economy's growth is heating up and that inflation is imminent. During the nineties, the economy achieved the balance between strong growth and excessive (inflationary) growth and investors in both the stock and bond markets enjoyed the bull market for a period of time. However, spending at major retail chains slowed down during the dot-com bust in 2001 and the credit crunch and financial crisis in 2008 and 2009. This index generally receives extra attention around the holiday season because that’s the time when retailers generate most of their revenues. On top of that, it is also a useful indicator when special events happen and can cause economic activity to momentarily slide. For example, the index was widely watched in the aftermath of Hurricanes Katrina and Rita in 2005.