Retail Sales – Forex economic indicator

Retail Sales Definition

A Forex trader is interested in different economic indicators; they help in the decision making process leading to sound investment. The information obtained through use of these indicators help in knowing when to step up, hold or even exit from a market. Retail sales report is one of the important Forex economic indicators that one considers or consults when making the required decisions. It mainly gives the Forex trader a rough idea on the level at which the consumer is spending. Consumer spending is one of the key drivers of an economy, when it is low, there is a clear indication that the income levels have gone down or the majority of the people in the country have resorted to savings. On the other hand a higher consumer spending indicates, high income, higher inflation or in some situation a low saving culture.
Analyst look at the retail sales report as in important indicator which gives the general idea on the strength of the econmy.Economists and traders rely on it in determining the overall purchasing trends. The report tracks the value of goods that are sold in the retail industry through taking a sample of companies or businesses which are engaged in this kind of sale. The sampling includes the point of sale and non store retails and companies both small and big.

The retail sales report is released periodically, in most cases it is usually on a monthly basis. The report released data for the previous month sales, something that makes it a timely indicator for gauging the performance of the industry as well as the price level activity.
The retail sales usually has two components; one is the total sales which were made in a given month accompanied by the percentage change from the preceding month. The second component is ex autos since the ticket price and seasonality can be skewed to the total figure.

How the retail sales data affect the foreign currency exchange market
The report usually gives two indications, the consumption level in a given country as well as the level of spending; these are two components which clearly tell whether the economy is expanding or not. For example when the retail sales figures show results which are better than expected, this is an indication that the economy of a country is actually expanding. Such kind of data would favor a national currency since a stronger economy purchasing more have the capacity of sparkling inflation. Such a development would lead to central bank raising the interest rates to avoid or control the inflationary pressures, a measure which would in turn lead to the appreciation of the currency. On the other hand a retail sales report which less than what was expected would mean that the economy is contracting, as a reactionary measure, the central bank would lower the interest rates with an aim of stimulating the economy. The weak retail sales data actually puts pressure on the value of the currency.

In summary, retail sales is one of the big Forex economic indicators, it can give a clear status on how the economy is performing at any given moment. It is a timely data which is released on a monthly basis allowing the Forex traders to get the current information which may affect the value of a currency.