US: Redbook

Tue May 05 07:55:00 CDT 2015

Actual Previous
Store Sales Y/Y change 1.6% 1.4%

Easter distortions, which are always a headache when looking at retail sales data, held down Redbook's same-store year-on-year sales reading which is at a very weak plus 1.6 percent in the May 2nd week. The last 3 reports have been hit by these distortions which reflect this year's Easter shift from late April last year to early April this year. The distortions are now played out, however, and won't be affecting the May 9 week. Looking to this month, the report notes early signs of strength for May's first shopping event, Mother's Day on the 10th. The second event is Memorial Day, May 25th.

Judging the strength of retail sales is key at the Fed right now which expects to see a pickup in line with the strength underway in consumer confidence. But Redbook's results, because of Easter, are too hazy to be useful judging the government's retail sales report where the key figure isn't an unadjusted year-on-year comparison but an adjusted month-to-month comparison.

A weekly measure of comparable store sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC-Goldman index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on through the month. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering about 10 percent of total retail sales.

Consumer spending accounts for 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.

The Redbook is one of the more timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005 and again when Hurricanes Irene and Sandy hit the East Coast in 2011 and 2012.