Retailers had another poor month in July. A surprisingly steep 0.8 percent monthly drop in sales followed a smaller revised 0.2 percent decline in June to leave volumes at a 3-month low. Unadjusted annual growth was minus 2.4 percent, down from 0.9 percent, and also the weakest since May.

Compared with a year ago, non-food sales were off 1.9 percent with textiles and clothing falling 3.3 percent and DIY purchases sliding 5.7 percent. Food declined 1.8 percent and has shown negative growth for more than two years.

Today's report leaves total volumes in July 0.3 percent below their average level in the second quarter, warning of a possible negative contribution from the sector to third quarter GDP growth. With inflation still so high, consumer confidence very weak and the Bundesbank calling for yet more ECB tightening next month, such an eventuality would hardly surprise. Indeed, the July data put the German ECDI at minus 37 and the ECDI-P at a very weak minus 52. It is not just the retail sector that is failing to keep up with market expectations.

Retail sales volumes are expected to rise 0.3 percent in July versus June's 0.8 percent fall.

Retail sales measure the total receipts at stores that sell durable and nondurable goods. The data are compiled from about 27,000 retail businesses and are reported in both nominal and volume terms. Autos are excluded. A very limited breakdown of subsector performance is available in the initial report which is itself subject to sometimes sizeable revision but much greater detail is provided in the following month's release.

With consumer spending a large part of the economy, market players continually monitor spending patterns. Retail sales are a measure of consumer well-being. 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.

Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report. However, by excluding the services sector, changes in retail sales data can differ significantly from those in total household spending.