Analyzing the effects of last week's important indicators on ETFs

Part 3
Analyzing the effects of last week's important indicators on ETFs (Part 3 of 10)

Why are we seeing a fall in monthly US retail sales?

The Johnson Redbook Index

The Johnson Redbook index is a weekly measure of comparable-store sales of large U.S. general merchandise retailers, representing about 9,000 stores. It’s a less consistent indicator of retail sales than the weekly ICSC-Goldman Index. By dollar value, the index represents over 80% of the equivalent official retail sales series collected and published by the U.S. Department of Commerce.

Redbook compiles the index by collecting and interpreting performance estimates from retailers. The Index and its sub-groups are sales-weighted aggregates of these estimates, and they generally follow retail fiscal months, which may start and end on different days than equivalent calendar months.

Johnson Redbook Retail SalesEnlarge Graph

Data interpretation

Redbook’s same-store year-on-year rate declined to 2.9% in the last week from 3.2% the previous week. The consistent decline in retail consumer spending could be a bottleneck for economic growth, as it accounts for about two-thirds of GDP. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth becomes excessive and leads to inflation. Retail sales not only offer a sense of the big picture, but also show trends among different types of retailers.

A decline in consumer spending can largely impact the top line of many leading retailers, including Wal-Mart (WMT), Target Corporation (TGT), and Costco Wholesale (COST).

While the disappointing data kept retailers worried about their margins, homebuilders applauded a few data points released last week. Read on to the next part of this series to learn more.

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