How to read the US retail sales report

What the report is and when it comes out

The US Census Bureau publishes the Advance Monthly Retail Trade report, usually called retail sales, around the middle of each month at 8:30 AM Eastern Time. It covers the previous month, so a mid-June release describes May.

The word advance matters. The first estimate is based on a sample of retailers and is released quickly, which makes it timely but incomplete. The numbers are seasonally adjusted, meaning they are smoothed for regular patterns such as holiday shopping, so one month can be compared with the next.

• Source: US Census Bureau, Department of Commerce
• Frequency: monthly, around mid-month
• Release time: 8:30 AM ET, before the stock market opens
• Main figure: percent change from the prior month

Headline, ex-autos and the control group

The headline number is total retail and food services sales. It is the figure most news stories lead with, but it includes volatile categories. Car sales can swing with incentives or supply problems, and gasoline station sales rise and fall with fuel prices.

For that reason traders also watch sales excluding autos, and the control group. The control group strips out autos, gasoline stations, building materials and food services. The Bureau of Economic Analysis uses it as an input when estimating consumer spending on goods for GDP, so many analysts treat it as the cleaner signal of underlying demand.

• Headline: all retail and food services sales
• Ex-autos: removes motor vehicles and parts dealers
• Ex-autos and gas: also removes gasoline stations
• Control group: removes autos, gas, building materials and food services

Dollars, not units: the inflation question

Retail sales are reported in nominal dollars. The figures are not adjusted for inflation. If prices rose during the month, sales can increase even when shoppers bought the same amount or less.

This is why reading the report alongside the Consumer Price Index helps. If sales growth looks solid but prices rose by a similar amount, real spending, meaning spending after removing price changes, may have been flat. The reverse also happens: falling gasoline prices can drag the headline lower while people are spending normally elsewhere.

• Compare the sales change with the latest CPI change for goods
• Check whether gasoline prices moved sharply during the month
• Ask whether a strong number reflects more buying or higher prices

Revisions and expectations

Each report also revises earlier months as more complete data arrives. A strong current month can look less impressive if the prior month was revised down, and a weak month can be softened by an upward revision. Traders tend to read the current figure and the revisions together.

Markets react to the gap between the release and the consensus forecast, which is the median estimate from economists surveyed before the report. A number can be positive and still disappoint if it falls short of what was expected.

• Look at the revised prior months before judging the new one
• Compare each line to its own forecast, not only the headline
• Note when the headline and control group point in different directions

Why consumer spending matters for markets

Consumer spending is the largest component of US GDP, so retail sales offer an early clue about the pace of economic growth. A run of strong reports can suggest the economy is holding up. Weak reports can raise questions about slowing demand.

The link to Treasury yields runs through the Federal Reserve. Strong spending has tended to support the idea that the Fed may keep policy tight to bring inflation toward its 2% target, which can push yields higher. Weak spending has tended to do the opposite. For index futures the effect is mixed: stronger demand can help earnings expectations, while higher yields can weigh on valuations. Which force dominates depends on the wider context, and exceptions are common.

Putting the report in context

A single month is noisy. Weather, holiday timing, tax refunds and one-off events can all distort the data. Many traders look at the trend over several months and at how the report fits with other evidence such as jobs data, inflation and consumer sentiment.

It also helps to know what the market is focused on that week. When inflation is the main worry, a hot spending number may be read through the lens of rates. When growth is the main worry, a soft number may draw more attention. The same figure can produce different reactions in different environments.

• Consider the three-month trend, not only the latest month
• Check whether other recent data agrees or disagrees
• Notice whether markets are more focused on inflation or on growth right now

Key terms

Retail sales

A monthly Census Bureau measure of sales at retail stores and food service businesses, in dollars.

Control group

Retail sales excluding autos, gasoline stations, building materials and food services, used as an input for GDP estimates.

Nominal

Measured in current dollars, without adjusting for changes in prices.

Real spending

Spending after removing the effect of inflation, which shows changes in the actual volume of goods bought.

Seasonal adjustment

A statistical method that removes regular calendar patterns so different months can be compared.

Revision

A change to a previously published figure as more complete data becomes available.

Consensus forecast

The median estimate from surveyed economists, used as the benchmark for judging a surprise.

GDP

Gross domestic product, the total value of goods and services produced in the economy.