October 19, 2022 | Last Updated on: January 31, 2023
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The retail sales report is released by the U.S. Census Bureau on, or around, the 13th of each month and is one of the vital metrics used by financial institutions, investors, economists, and financial analysts to measure the health of the U.S. economy. The retail sales report is used along with the monthly jobs reports, released by the Bureau of Labor Statistics (BLS), to measure inflationary pressures. The report uses in-depth data from the sales of durable and nondurable goods over a specific time period.
The report is made up of sales data from 13 major types of retailers including:
The report is based on data collected from receipts and interviews with random retail stores throughout the United States. While the report is intended to capture a sample from every retail industry and product type, the data sets do not include service-based businesses, like travel and health care. Car dealers and other motor vehicle sales data is included in the report but is often excluded when using the results to predict economic movement because the automotive industry is considered a volatile market that produces inconsistent sales data from month to month. Gas station data may also be excluded for volatility when analyzing the retail sales report because of fluctuating oil and fuel prices.
The retail sales report is released in three phases. The first is the advance report, which is published each month to report sales data from the prior month. The advanced report shares the data of 5,000 retailers that were polled by the Census Bureau. Since a portion of the surveyed businesses do not complete the survey, the information in the monthly report may be considered incomplete. The advance report is used as a reference to make financial forecasts, or predictions. Later, a preliminary version is released that reveals the results from an additional 8,000 retail locations. The final revision comes out one month later and includes the data and analysis of all 13,000 retailers. It is estimated that only 75% of entrepreneurs respond to the survey request. The data is not adjusted to account for inflation, like with other government analysis tools including the consumer price index (CPI) and the gross domestic product (GDP).
Since the retail sales report is composed of so much data, there are three general areas of focus used by business owners, financial market analysts, and economists.
Consumer spending makes up a quarter of the gross domestic product (GDP), with the other factors considered being: investments, government purchases, and net exports. The GDP represents the value of money in our country and is used as a financial measurement for economic health. The GDP is the primary resource for evaluating production and growth in a country’s economy and is used to measure the standard of living. Increases in GDP over time represent a positive movement for the economy, while decreases indicate an economic downturn.
Policymakers, like those at the Federal Reserve, or the U.S. Central Bank, consider the published GDP when evaluating the inflation rate or analyzing recession threats. When the Fed raises interest rates, they do so to combat inflation and improve the overall economic position of the country. The GDP is a large contributor to the calculations and informed decisions used to determine those monetary policy changes. Since consumption is a large part of calculating GDP, the data provided by the monthly retail sales reports is valuable to economists.
Gross domestic product is measured in one of the following four ways:
The most recent retail sales report was released on October 14, 2022, and covered data from the month of September. The report showed that the retail business and food service sales during September did not increase, nor decrease, from the previous month. When reviewing the data, excluding car sales and gas station data, consumer spending actually increased during September by 0.1%.
The lack of movement in retail sales did not come as a big surprise because the report released in August revealed a relatively small increase of 0.4% growth. The July report showed the opposite, with a 0.4% decrease in retail sales.
With inflation rates the highest they have been in thirty years and the country still recovering from the pandemic, increased costs of living may have contributed to the stagnant retail sales. Since people are spending more money to cover housing and grocery costs, there is less money available for retail spending. In fact, inflation may have contributed to the data in a positive way, because grocery sales during September increased by 0.4%, most likely due to increased food costs.
The lack of activity in retail sales may also be a result of the Fed’s most recent 75 basis point interest rate hike, which increased the Federal Funds rate to 3 to 3.25% in September. Since the monetary policy is enforced and interest rates are raised to fight high inflationary rates and bring balance to the economy, the September retail sales report indicates that American consumers are responding to the Fed’s efforts. Purchases of big-ticket items, like consumer electronics, household appliances, and furniture decreased by 0.8%, even though those categories thrived during early 2020 when the public was first coping with the effects of COVID-19.
Other categories reporting increased revenues during September included clothing stores, although compared to prior years, the back-to-school season did not have as much of an impact on retailers. Brick-and-mortar stores, like Target, showed increases, as did online sales, like at Amazon. Restaurant businesses showed moderate growth, but it is impossible to determine if the pick up in spending for those categories is because of increased foot traffic or increased prices. The monthly inflation report during that time revealed that prices were 8.2% higher than in September 2021. The moderate growth from month to month during 2022 may not represent increased overall spending but may indicate consumers are spending more of their income on necessities.
The September Jobs report, released October 7, 2022, showed that the unemployment rate, at 3.5%, was decreasing. While this brought optimism to many members of the labor force and reassured consumers that an immediate recession is not likely, it did not do much to ease the stresses caused by rising inflation. The increasing interest rates decrease the borrowing power of businesses and consumers, causing panic and negatively impacting retail sales purchases not considered necessities and wage increases for American workers.
The retail sales report matters to small business owners because it shows the level of demand that exists for consumer products. The report helps owners make business decisions based on reported customer behavior. Learning about the current trends in consumer spending increases the decision-making power of entrepreneurs when contemplating purchasing decisions, hiring activity, and the timing of rolling out new products.
The effects of inflation on small business owners and skyrocketing supply costs are concerning. Entrepreneurs in established businesses and those that opened a new business recently are wondering what steps they can take to increase profit margins at their retail locations or e-commerce businesses. While every business is unique, the following tips were created to help small businesses navigate the economic slowdown.
The retail sales report did not indicate a decline in spending, but since that is in part due to increased prices, an economic downturn becomes the perfect time to focus on retail marketing. Protect future revenues by bringing in new customers and enhancing the customer experience for your loyal shoppers. Consider launching a social media marketing campaign, using Facebook or LinkedIn. If social media is not for you, take advertising offline and consider some in-person marketing strategies, like rewards programs, discount programs, and referral bonuses.
While the retail sales report released by the U.S. Census Bureau gives a good summary of consumer spending, utilizing in-store tools is the best way to stay ahead of changes in your business. Make it a habit to run daily sales reports, either through the Point of Sale (POS) machine or cash register reports. Take note of the percentage of sales that are made with credit cards versus cash. Note whether certain sales associates are significantly selling more than other employees. Review peak hours and consider altering the business hours and staffing to optimize store sales. Most POS systems, especially those equipped for real-time checkout, will have user reports built into their software that show sales trends over time. Run those reports at least weekly to stay on top of the trends and adapt when necessary.
With interest rates on the rise, many entrepreneurs are concerned about the monthly expenses of their store leases or commercial real estate mortgages. Reaching out to a small business loan expert is a great way to see if you can increase monthly cash flow by refinancing old business debts, like real estate loans or business lines of credit. Business loans are also a great financial resource for entrepreneurs that are struggling to cover monthly operating expenses during times of decreased customer spending, seasonal fluctuations, and increased interest rates.
The September retail sales report showed that consumer spending had not changed throughout the month. Customers are still frequenting retail locations to purchase necessities and luxury items. Inflation impacts retail sales statistics because increased costs of goods may be interpreted as increased sales. Small business owners can protect their businesses by:
