Retail sales are the heart of an economy. It represents how main street people are interacting with the commerce and industry of a country. Consequently, it provides Forex traders with considerable opportunities to catch some pips every month.
Indeed, it happens in every single economy in the world, but today we are going to take the United States report as a sample. Why? Because it is the retail sales report that has more impact on the Forex market.
Whether you live in the United States or not, you have undoubtedly heard about the power of the American consumer. They love to go shopping; they have their Black Friday, Labor Day Weekend sales, and Christmas fairs. They are the engine of the American economy.
So, as the United States is the most important economy in the world right now, their consumers are among the most critical consumers in terms of economic data. Not only for the states itself, but also for countries that are commercial partners with them.
With that in mind, you may understand how vital retail sales data is. Therefore, it is critical in Forex too. It is among one of the most pip-makers in the industry.
Let’s talk about retail sales, its definition, categories, and trends. Finally, learn how to trade retail sales in Forex.
What are retail sales
The Retail Sales report is an economic indicator published monthly around the mid of the month. In the United States, it is issued by the Census Bureau, but in other countries are published by official departments as shown below.
Retail sales data is published in other countries by:
- Germany: Statistisches Bundesamt Deutschland.
- Eurozone: Eurostat.
- United Kingdom: National Statistics.
- New Zealand: Statistics New Zealand.
- Australia: Australian Bureau of Statistics.
- China: National Bureau of Statistics of China.
- Canada: Statistics Canada.
- Japan: Retail Trade and Large Retailers’ Sales by the Ministry of Economy, Trade, and Industry.
Retail sales record the value of purchases of finished durable and non-durable goods and services by consumers and businesses. The products are intended to be the end of the chain supply.
The report monitors consumer spending habits and the demand for goods and services in the given country. The U.S. Census Bureau collects the data via data sampling. “Each month, questionnaires are mailed to a probability sample of approximately 5,500 employer firms selected from the larger Monthly Retail Trade Survey,” says the official source.
As mentioned above, retail sales are an excellent indicator of the pulse of the economy, and it is a signal for possible economic expansion or contraction. So, it will affect the currency of the given country or region accordingly.
Retail sales categories
The Census Bureau segments the retail sales into 13 categories, and it assigns each one with a different weight percentage in the report. The largest category is auto and auto part stores, with 20% of value in the release. The smallest are Furniture stores and consumer electronics with around 2.5% each.
US retail sales categories:
- Auto dealers: Auto parts, new and used car sales.
- Nonstore retailers: Online retail sales.
- Department stores: Traditional large stores.
- Apparel: Specialized stores such as clothing, fashion equipment stores.
- Electronics and appliance stores: Small and big-box retailers.
- Food and beverage stores: Grocery and liquor, house products.
- Building and garden supply stores: Construction retail stores.
- Sporting goods/hobby stores: Art supplies, sports equipment, etc.
- Health and beauty: Drugstores, etc.
- Furniture stores: Like Ikea and traditional furniture warehouse.
- Hospitality and leisure: Hotels, bed and breakfasts, restaurants, and bars.
- Gas stations.
To understand the retail sales report and to figure out specific data and a more accurate understanding of the retail sector, the Census Bureau published different segmented data such as Core Retail Sales and Ex Autos and Retail sales control group.
US Core Retail Sales and Ex Autos
As the auto and auto part sales category is the heaviest sector in the report, it also can distort the accuracy of the day-to-day living of common people. Imagine that there is the annual season for rental car companies purchases, it can change the number and can make hypes in the data. The component also excludes gas station sales.
It also helps to measure the impact of the car industry sales and gas in the headline number. So, Forex traders follow retail sales ex-autos as a critical component for the whole data. It can move the market and push a currency up or down.
Retail sales control group
The control group excludes autos, gasoline, and construction materials. It is used to build the Personal Consumption Expenditure report, which is an indicator of inflation. Forex traders well follow this data as it can provide hints about inflation, which will also motivate the Federal Reserve to raise or cut interest rates.
How to trade Retail sales
As retail sales represent around 70% of overall economic growth, many traders keep an eye on this data every single month.
Traders usually watch three possible scenarios, a better than expected data, a weaker than previously anticipated number and a release in line of expectations. As we in Forex trade the reaction of the market after a data, we will look for divergences in all components in the report.
Also, investors who are trading the retail sales report in forex usually watch revisions from the previous month’s numbers. However, you should take it with a grain of salt as the first report is always the advance and the second, which is published the month after with the new month advance, is usually revised.
So, a positive or better than expected number will fuel the currency of the given country to the upside. On the other hand, a weaker or disappointing number will push the money down.