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Why Retail Sales Are Important

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Retail sales are an important economic indicator because consumer spending drives much of our economy. Think of all of the people and companies involved in producing, distributing, and selling the goods you use on a daily basis like food, clothes, fuel, and so on.

When consumers open their pocket books, the economy tends to hum along. Retail shelves empty and orders placed for replacement merchandise. Plants make more widgets and order raw material for even more.

However, if consumers feel uncertain about their financial future and decide to hold off buying new refrigerators or blue jeans, the economy slows down. This is why politicians have resorted to tax rebates to give the economy a boost. By putting cash in consumers’ hands, they hoped to spend their way out of a recession.

On the 12th of every month, the Census Bureau releases the Retail Sales Index, which is a measure of retail sales from the previous month as determined by a sampling of stores both large and small across the country. Although subject to future revision, the market closely watches this number as an indicator of the nation’s economy.

The report actually lists two numbers. The first is Retail Sales and the second number is Retail Sales Ex-Auto or without automobile sales included. The reason is auto sales can skew the overall number that they are big-ticket items and subject to seasonal fluctuations.

The number crunchers on Wall Street come to their own conclusions before the Census Bureau issues the report and that number is usually close. However, if the “street consensus” and the actual report differ significantly, look for the market to react abruptly. The market does not like surprises.

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