Understanding the Retail Sales report

Retail sales is, after the employment report, the second major piece of economic data to be released (see here for the date of retail sales releases) typically arriving 9 working days into the month (around the 14th), about ten days after the employment report.

Personal consumption of goods is about 28% of GDP (personal consumption of goods and services or PCE is about 70% of GDP, also including, among other items, housing and medical care). So by the middle of the next month we have a rough estimate of the performance of a bit over 1/4 of the GDP. But, as we will see below, the estimate is rather rough.

The Advance retail sales report (that is the data that are published first) surveys 5,000 firms, including 1,300 large firms that are always sampled and the remainder randomly selected to represent the entire retail industry (see here for details of the Advance report). A month later the revised report called the Monthly Retail Trade Survey is published; the Monthly report surveys 12,000 retail firms, including the 3,000 largest firms and another 1,000 firms that are the largest in their sector.

Due to the change in the sample, there is often a significant amount of revision in the data; in the most recent release the Census Department estimated that the 90% confidence interval of the Advance number was ±0.5%, meaning that if the monthly estimate is, say, +0.4%, then the true number is likely to be between -0.1% and +0.9%, but there is a small chance (10%) that it is outside that interval. The 90% confidence interval for the Monthly report, that is the data of two months before, is considerably smaller, ±0.2%. If you are confused by the language of statistical inference, the message is that the Advance data are less trustworthy than the revised data, but are better than nothing.

The questionnaire that firms fill out is fairly simple (see a pdf of an Advance Report Survey here), asking for the amount of sales, e-commerce and the number of retail establishments. An important point is that the form does not ask anything about price, just sales. A related point is that the retail sales data are nominal data, that is not adjusted for inflation; careful retail sales analysts will adjust retail sales by the appropriate inflation measure to obtain measures of real activity.

Finally, careful GDP analysts will examine the parts of the retail sales reports that the Commerce Department uses to calculate PCE. Commerce uses other sources for some of the data included in the retail sales report (notably cars, trucks and gasoline); see here for details.

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