Tuesday saw the release of another retail sales indicator, the Redbook. A less consistent indicator of retail sales than the ICSC-Goldman Sachs (GS) Index, the Redbook is a weekly measure of comparable store sales at chain stores, discounters, and department stores conducted and released by the Redbook Research, Inc. This index is correlated with the general merchandise portion of retail sales covering about 10% of total retail sales.
The Redbook Sales Index is 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. This makes the index less consistent as compared to the ICSC-Goldman Store Sales Index.
Like the ICSC-Goldman Store Sales, 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.
Unlike the ICSC-Goldman Store Sales Index, which saw a dip, the Redbook showed some strength in same-store sales during the April 19 week by recording a year-on-year rate of +3.7% vis-à-vis the 2.6% recorded in the April 12 week. This has been the strongest reading since the beginning of January, and is partly attributed to the late Easter. Month-on-month figures for the April 19 week, however, pointed to weakness, at a 0.5% decline. The consumer sector has been held down by slow job growth as well as a soft housing market.
To know more about the Redbook, read the series, A must-know investor’s guide to the Redbook Sales Index.
The pattern in consumer spending is often the foremost influence on stock and bond markets. Consumer 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 and 2009 due to the credit crunch and recession.
Stock investors vouch for a strong economic growth, which translates to healthy corporate profits and higher stock prices. For bond investors, the focus is on whether economic growth goes overboard and leads to inflation. Steep movements in consumer spending, as indicated by retail sales indicators such as the Redbook, are the manifestation of increased economic activity.
The Consumer Discretionary Select Sector SPDR Fund (XLY), which includes companies like McDonald’s Corporation (MCD) and Nike, Inc. (NKE) in its portfolio, and the SPDR S&P Retail ETF (XRT), are popular ETFs in the consumer discretionary equities ETFs category. Changes in consumer spending are reflected in the performance of these ETFs.