Key indicator: Why investors should follow retail sales releases
The importance of retail sales
The United States is the world’s largest consumer, with personal consumption expenditure estimated at nearly $10.9 trillion (or 68% of gross domestic product).
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Retail as an industry flourishes when consumers have more disposable income at hand and are willing to spend a few extra bucks on discretionary goods. So growing retail sales mean higher disposable income levels and an improving economy.
Improvement in the retail industry also results in better prospects for industries like logistics and supply chain as well as manufacturing, which boost the whole economy in turn.
Apart from spending on retail goods, consumers also spend on housing and durable goods such as cars when they have more dollars at hand and when they’re confident about their personal prospects and the future of the economy as a whole.
An improvement in the economy results in improved market sentiments that take stock indices (SPY) up with them. A boom in retail sales boosts the stocks of companies such as Walmart (WMT), Target Corporation (TGT), and Costco (COST) as well as retail ETFs such as the SPDR S&P Retail ETF (XRT).
To learn more about the important retail indicators and how they’re compiled, read on to the next part of this series.