What Is Retail Sales?
Retail Sales data is an economic indicator that sees the economy from consumer eyes, beside of Consumer Spending data and Consumer Confidence Index. The report does not actually comprised of all transactions that occur in a country, but it is some kind of survey that is sent out to randomly-sampled retailers. The retailers were categorized into several groups, and then some samples will be taken from each group to send up the data neded for the survey.The common weakness of consumer data is that although they are a good data to know if you own a business, they often don't reflect the whole situation on the real economy. In case of Retail Sales data, sales of certain goods and services is sometime excepted from the survey. US Retail Sales, for example, did not include Automotive sales. Additionally, Retail Sales report does not take inflation into account and disregard price fluctuation on the real economy.
Nevertheless, Retail Sales data is a monthly report of an aggregated measure of a country's retail goods and services over a certain time period. The data is presented in percentages of ups and downs. There are seasonal trend when consumption rose due to national holiday or religious celebration, and so the government usually put seasonal adjustment to make it less peculiar. The higher the percentage of Retail Sales, the better it is. But if it is decreased from time to time, then it is an alarm warning for policy-makers.
Why Is Retail Sales Data Important?
Many countries in the world relies on consumption and known as consumer-driven countries, such as the US, UK, and Canada. In these countries, Retail Sales is an important number to see which industry is booming, which industry slumps, and how consumers are responding to certain policy that was just applied by the government. Therefore, people are looking into the data to gauge how the economy is faring. Furthermore, Investors are checking this data to make important decision about their investments, and the government is using it as one of several considerations when they are going to take the next policy.Unlike Consumer Confidence Index (CCI) that observe consumer sentiment in the upcoming period, Retail Sales actually record samples from the previous period. That makes it into something actual instead of simply the likelihood of that is measured by CCI. This is why forex traders should observe retail sales data.
How Forex Trader Respond To Retail Sales Data?
Advance estimate of Retail Sales data in the US is scheduled to be published in the second week of each month. The report will review Retail Sales in the directly preceding month, and is a high-impact event in forex fundamental calendar.Investors in the bourse likely will see each category in the report. The decision they make in regard of stock and bonds could sway the forex market trend. However, on the whole, forex traders do not really looking into every facet of the report, but rather the overall percentage shown on the report.
A better-than-estimate Retail Sales number means that the economy is going into the recovery nicely. However, it might not be true when there is a big celebration coming, such as Easter in the Europe or Christmas in the US. In those moments, seasonal increases are fully expected. Therefore, Retail Sales data improvement possibly only have slight impact on the market.
On the other hand, a worsening Retail Sales data could be interpreted in various ways, and forex traders will do better to check all of them before thinking the economy is going downhill. These are two reasons why Retail Sales dropped beside of worsening economy, and how the market probably will react:
- Bad Season.
Bad winter and other extremes might lead into bad Retail Sales. If there is blizzard outside, who wants to go shopping anyway!? However, during such month, other data releases usually show similarly bad number, and so traders should be careful not to take a bet for the currency. After the season ends, though, economic indicator usually recovers.
- Tax Hike.
If Retail Sales drop after tax hike, then that is fine, because that is the way it should be. If the number is lower than consensus estimates, it means that the impact of the tax hike is bigger than analysts think it is. The estimates might miss for that one time, but analysts will revise their estimate so the next one might be correct. Consequently, the currency might drop for an instant in the forex market, but the market will not dwell on it.
Those are how a forex trader might observe the publication of Retail Sales data. Are you ready to trade on it? Don't be hasty. Collect the record in the previous months first. Fundamental calendar could help you with that. Remember that how far the data will influence the pair you trade depends on the gap it has with the same data in the previous period.