As you may have read over the last few weeks, I am doing a series on the various economic indicators that are released by various government agencies, NGOs, and other private groups. Some of these you may be familiar with, but I realized that not everyone may know what these indicators mean, where they come from, and why they are important. If there is an indicator that you have heard about that you would like to know more about, please feel free to email me at email@example.com and I’ll move that one to the top of the list.
This week, I am going to discuss retail sales. Retail sales are important because in the consumption driven society that we live in, the consumer is the engine that powers the economy. That is my own personal definition, but Investopedia defines retail sales as “and aggregated measure of the sales of retail goods over a stated time period, typically based on data sampling that is extrapolated to model an entire country." Simply stated, that means that measuring every retail transaction over the entire country for a given time period is impossible, so instead they take a statistically relevant sampling of the data, and use that to estimate retail sales for the entire country. No matter how you define it, retail sales and consumer spending drive about 70% of economic growth in the United States.
In the United States, the retail sales, aka the Advance Monthly Sales for Retail and Food Services, are measured monthly by a division of the Department of Commerce, or more specifically, the Census Bureau. The report is released two weeks after the end of the previous month. Because the report is seasonal in nature, the year over year number is the one you will hear about the most often. 20% of all shopping tends to occur during the holiday season, which can greatly skew the holiday numbers. The report is not adjusted for inflation, and when gas prices change substantially, it will show up in the report. Another category that is routinely excluded from the report is automobiles, as the high sticker price tends to cause higher volatility than other parts of the report.
The report is broken out into catagories, which include retail and food services, Department Stores (GAFO), Motor Vehicle & Parts Dealers, Furniture, Electronics, Food & Beverage, Drug Stores, Gas Stations, Clothing Stores, Sporting Goods, General Merchandise Stores, Miscellaneous, Nonstore Retailers, and Food Services and Drinking Places. Non-specialized food stores, or grocery stores, made up 36.8% of all retail sales in 2016, while clothing stores made up 11.8%, and department stores made up 8.8%. Home improvement, electronics, and furniture stores made up just 8.4% of all retail sales. Automotive fuel made up 9.5% in 2016, but should rise this year if gasoline prices continue to rise.
In the most recent report, retail sales declined by 0.2% YOY, which matched the expectation. Year over year, retail sales are up 5.2%. Anything over 3% is considered healthy. There were also downward revisions to January and February, which gave the national media a reason to say this was a bad report, but I’m not sure how 5.2% can be considered bad. The categories that declined during the month were autos, building materials, and gas stations. Excluding those 3 categories, retail sales actually rose 0.4% in March. Seeing a dip in retail sales in the first 3 months of the year is not unusual, it has happened for the last 3 years, and rebounded later part of the year. There are additional reason for the data this month including delayed tax refunds, late Easter, and unseasonably cold weather in the Northeastern states in March.
It is really hard to make this report look bad, but I saw several headlines that did just that. There are a lot of things being referred to as the “Trump Effect”, but the rash of negative headlines definitely seem to fit that description. No matter how good or bad the data is, the headline is going to be negative, and this month's Retail Sales report was no exception.