Advance Retail Sales: The Consumer Spending Read

Key Takeaways

• Advance retail sales estimates monthly receipts at retail and food service businesses, released about nine working days after month end.
• The report is reported in current dollars, so it is not adjusted for inflation.
• Consumer spending is the largest part of the economy, making this an early input to GDP estimates.
• The month-to-month percent change, and the surprise versus forecasts, is what moves markets.

What It Is

Advance retail sales is published monthly by the U.S. Census Bureau as the Advance Monthly Retail Trade Survey. It estimates total sales at retailers and food service establishments, covering categories from auto dealers and gas stations to grocery, clothing, electronics, and restaurants. The advance estimate comes out roughly nine working days after the close of the reference month.

It is called "advance" because it is an early, partial estimate based on a smaller subsample of retailers. The Census Bureau revises it the following month with fuller data. The figures are reported in current dollars and seasonally adjusted, but they are not adjusted for inflation.

The Intuition

Consumer spending is the engine of the U.S. economy, accounting for the majority of gross domestic product. If you want a fast read on whether that engine is revving or stalling, retail sales is the place to look. It captures actual cash spent at stores and restaurants, not surveys of intent or sentiment.

The timing is the appeal. Retail sales arrives well before the quarterly GDP report, so the Bureau of Economic Analysis uses it as a building block for its GDP estimates. A strong retail print suggests solid growth ahead. A weak one raises the odds of a slowdown, which is why markets react quickly to surprises.

How It Works

The headline most people quote is the month-over-month percent change in total sales:

MoM change = ((sales this month / sales last month) - 1) * 100

Because the data is in current dollars, a rise can come from people buying more or simply paying higher prices. In a high-inflation period, nominal retail sales can climb even as real spending stalls. Analysts adjust for this by comparing the growth rate to inflation over the same period.

The report also breaks sales into more than a dozen categories. Two of them, auto dealers and gas stations, are volatile because they swing with car-buying cycles and fuel prices. For that reason, analysts often look at sales excluding autos, and sales excluding both autos and gas, to find the steadier underlying trend.

Worked Example

Suppose total advance retail sales come in at 757 billion dollars this month, up from 753 billion last month. The month-over-month change is:

((757 / 753) - 1) * 100 = 0.53 percent

So sales rose about half a percent. But suppose gasoline prices jumped that month. Because gas stations are included in the total, higher fuel prices alone could account for much of the gain even if people bought no more goods overall. Stripping out gas and autos would reveal whether the core consumer was actually spending more, which is why those exclusions matter.

Common Mistakes

1. Forgetting it is not inflation-adjusted. Nominal sales can rise simply because prices rose. Compare the growth rate to inflation to see whether real spending increased.

2. Reacting to the volatile categories. Autos and gas swing hard month to month. A headline driven by a fuel-price spike or a car-sales surge can mislead. Check the ex-autos and ex-gas cuts.

3. Ignoring revisions. The advance estimate is based on a subsample and gets revised next month. Treat the first print as preliminary.

4. Overreacting to one month. Weather, holidays, and the timing of paychecks distort single months. The trend over several months is more reliable.

5. Assuming it covers all spending. Retail sales captures goods and food service but excludes most other services like healthcare, housing, and travel. It is a major slice of consumption, not the whole.

Frequently Asked Questions

What is advance retail sales in simple terms? Advance retail sales is an early monthly estimate of how much consumers spent at stores and restaurants. It is one of the quickest signals of whether household spending is rising or falling.

How does advance retail sales affect investment decisions? A strong report points to healthy consumer demand and supports growth and corporate earnings, while a weak one raises recession worries. Markets often move on whether sales beat or miss the consensus forecast.

What is a real-world example of advance retail sales mattering? When monthly sales come in well above forecasts, retail and consumer-discretionary stocks often rally, and the data feeds directly into economists' GDP estimates for the quarter.

How can investors use advance retail sales effectively? Look past the headline to the figure excluding autos and gas for the steadier trend, compare the growth rate to inflation, and track several months rather than reacting to one volatile print.

How is advance retail sales different from the control group? Advance retail sales is the broad headline including autos, gas, and building materials, while the control group strips those out plus food services to give the measure that feeds most directly into GDP.

Sources

1. U.S. Census Bureau. "Monthly Retail Trade - Sales Report." https://www.census.gov/retail/sales.html
2. U.S. Census Bureau. "Advance Monthly Retail Trade Survey." https://www.census.gov/econ/overview/re0300.html
3. U.S. Census Bureau. "About the Advance Monthly Retail Trade Survey." https://www.census.gov/retail/marts/about_the_surveys.html
4. U.S. Bureau of Economic Analysis. "Gross Domestic Product." https://www.bea.gov/data/gdp/gross-domestic-product

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.