Retail sales. Retail sales is the data that monitors all purchases of finished goods and services by consumers and business. It is incredibly important as consumerism accounts for a large portion of economic activity.
In general, increasing retail sales is an indication that the economy is improving. If consumers are confident in their economic circumstances and the future of their situation, they will continue to buy products and fork out money on items that aren’t necessities. This causes levels of manufacturing to rise in line with demand and boosts GDP. It can also have a direct impact on the share prices of the companies involved in creating consumer ‘wants’. These shares are known as cyclical stocks.
However, when consumers start to feel uncertain about their economic future, they will stop buying unnecessary items and restrict their spending. During these periods, defensive stocks – those of companies involved in producing consumer necessities like food and utilities – will tend to outperform the market. To combat the decline in spending, governments often implement tax reductions in order to give consumers more money and boost spending.
However, retail sales alone don’t necessarily provide an accurate picture of public spending. For example, it could be the case that people are taking out loans in order to continue spending. Although this would show continued high retail sales, but the debt levels would indicate an impending recession.
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