The holiday shopping season seems to have been a success as chain stores are reporting mostly higher rates of year-on-year sales growth in December. This is a positive sign for ex-auto ex-gas core sales in the government's December retail sales report. Core rates in the government's data have been very solid in recent months, at year-on-year gains of 5.2 and 4.6 percent and monthly gains of 0.6 and 0.7 percent in November and October.
Monthly sales volumes from individual department, discount, apparel, and drugstore chains are usually reported on the first Thursday of each month. Chain store sales correspond with roughly 10 percent of retail sales. Chain store sales are an indicator of retail sales and consumer spending trends. There is no official composite number for each month's sales, merely sales figures for individual chains. Also, which chains release monthly numbers varies over time as corporate policies sometimes change in regard to providing monthly numbers to the public in addition to quarterly data.
Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and during the 2001 recession. Sales weakened again in 2008 due to the credit crunch and recession.
Chain store sales not only give you a sense of the big picture but also trends among individual retailers or different categories. Perhaps discount chains are doing well, but not high-end department stores. Maybe apparel specialty retailers are showing exceptional growth. These trends from the monthly chain store data can help you spot specific investment opportunities, without having to wait for the quarterly or annual reports.
Just a few words of caution. Sales are reported as year-on-year change from the same month a year ago. It is important to know how strong sales actually were a year ago to make sense of this year's sales. In addition, sales are usually reported for both total sales, which include new store openings and acquisitions, and for "comparable stores" which are stores than have been in place for at least one year.
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