• Home ::
• Education ::
• Fundamental ::
• Fundamental Forex Foundations

• Send
• Print
• Add To
• Rss

Fundamental Forex Foundations

b889c9cb-be16-4e83-9d16-917798916121

3

0

Retail Sales (Comprehensive and Core)

Tue, Jul 14 2009, 10:33 GMT
by Tim Salem

FXstreet.com Independent Analyst Team

This Data Point is the First Data Point Release of the Month concerning Consumer Spending. The Data is released approximately Two Weeks after Month’s End at 12:30 GMT. Traders are interested in this Data, as it functions as a Barometer of overall Consumer Health, Confidence, and Spending of the previous Month in the current Economic Climate.

Revisions to this Data Month-over-Month can be quite significant, as Consumer Spending represents about 75% of the overall underlying, and in this case, U.S. Economy.

The Data is closely monitored by Investors, since it tracks Consumer Aversions and Appetite.

About 33% of the overall 75% is made up of Retail Sales by Consumers. The greater the Increase in Consumer Spending, the Healthier in Sentiment the Economy is perceived to be.

The Census Bureau conducts various Surveys at the Retail Level each Month, with the Data disseminated as follows:

Retail Entities report their most recent Sales Numbers, and these Figures are viewed by Investors, Economists, and Statisticians as a Barometer for Changes in Consumer Spending Habits, as deeply Unexpected Changes will cause Volatility in The Markets.

Disadvantages to the Data are as follows:

• The Data is a small Cross-Section of Spending habits, notably Auto Dealers, Gas Stations, Fast Food Service, Department Stores, etc; and is not a “true” Representation of ALL Spending Habits and Sentiments by Society as a whole.
• The Data does not include any Information on Personal Expenditures such as Air travel, Dental Care, Insurance, Personal Grooming, Entertainment such as Concerts and Movies, etc., which make up approximately 2/3 of all Personal Spending.
• The Retail Sales Data is NOT adjusted for Inflation, as it is measure in Nominal Terms. Difficulties arise due to not knowing in the Data is the actual Price Paid became higher, or if a higher Quantity of Good and Services were purchased.

The Numbers and How They are Derived

Surveys are generated by Random Selection to approximately 5.000 Large and Small Retail Entities.

1. 1. The Retailers receive the Surveys around the 3rd Day of the Month, and are asked to send them back within One week. (Less than 50% actually return them On-Time).
2. 2. The advance Reporting involved offers an Immediate Assessment of any Marked Changes in Consumer Spending Habits and Patterns, hence the Volatile market Conditions that may follow.
3. 3. Approximately Eight Days later, another 8,000 Retailers are surveyed and polled as a Continuation to provide Data and Sentiment on what Consumers may be purchasing and looking into purchasing.
4. 4. This Survey of the 8,000 is crucial, as these Results lead to the Preliminary First Revision Data.
5. 5. Four weeks later the Data from the Final Report is available, which is largely based on the original 13,000 Retailers that were surveyed. Approximately 75% of the 13,000 make up the Criteria of the Final Report.
6. 6. The Currency Figures (in this case The Dollar) are then compiled from various Receipts and are void of Taxes, Finance Charges, and Customer Returns and Rebates to arrive at as “True” a Figure as possible.
7. 7. These Amounts then represent the “True” Amount that Consumers spent on Goods and Services for that particular Month.
8. 8. The Figures and Amounts are NOT Annualized for Inflation, Deflation, or any other Economic Sentiment.

The CORE Component of Retail Sales is all of the present Criteria EXCLUDING Motor Vehicle and Auto-Related Purchases. This is due to the High Volatility that exists from Month-over-Month with these Categories of Purchases that truly account for less than 25% of all Retail Spending by the Consumer.

The CORE Component, similar to PPI and CPI, will hold more “Importance” and “Weight” for The Trader, as the Data Point Release holds a “Truer” Measure of Economic Sentiment than The Comprehensive Release.

Trading Ideas

Traders will look to The CORE Data as the “stronger” of the two simultaneous Releases, since the Volatility of Auto-Related Transactions are not included. Consensus Expectations will be monitored, and the Markey “Disconnect” from Actual to Consensus Figures will create or negate Tradable Opportunities.

CURRENCIES: Strong Retail Sales will illicit will provide Strength to the underlying Currency, as a Robust Spending Environment will encourage Inflows of Foreign Investment through Treasuries and other Asset Classes. This, in turn, results in rising Interest rates, and as long as The Call Rate is not rising too rapidly with Inflationary Concerns, the Retail Sales Figures will keep the underlying Currency Well-Bid in the Immediate-Term.

BONDS: Strong Retail Sales will work with “Inversion” concerning Bond Prices and bring them lower in Value. Sentiment is disseminated by stronger Retails Sales translates to an Increase in Consumer Spending. Hence, Traders will see higher Yields which will reflect the lower Depreciation in Bond Values.

EQUITIES: An Increase in Retail Sales are always considered and translated into Positive Sentiment for the “Guidance” of the Stock Firm or Company in question. The increase in Corporate Profits is a direct result of Retail Sales and other Figures, and Weak or Weaker-than-Expected Sales Data will lead to lower underlying Value of the Stock Itself. This is due to Sentiment of “Fair Value” now being in question, and if The Equity is sustainable or not in Value.

Traders may take Cues from the existing Directional Climate of the particular Units they are looking to work with. The closer to Consensus the Actual Headline Numbers emerge, the more Neutrality will be seen with Initial Reaction. A large Disconnect in Retail Sales Consensus and Actual Data with Weakness will see the underlying Currency Depreciate in the Immediate-Term, and the Inverse will result if the Retails Sales Data is Stronger in Release.

The KEY will be in measuring the “Depth” of Strength or Weakness Consensus going into The Release. Technically, 5-Minute Candles may be used as traders wait for one or two to Close while Price “digests” Initial reaction and Sentiment to The Release. They then may apply their Strategy accordingly, as Price will have "clearer" Sentiment to the Actual Data moving ahead.

* Download here the Retail Sales Data courtesy of The U.S. Department of Commerce

• Download full report

Published on  Tue, Jul 14 2009, 11:05 GMT