Market Overview

Advance Retail Sales Signal Lower Consumer Spending

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The U.S. Census Bureau conducts the Advance Monthly Retail Trade and Food Services Survey to provide an early estimate of monthly sales by retail and food service firms located in the United States.

Each month, over 5,000 questionnaires are sent to these firms, which represent about 65% of the total national sales estimates. The change is measured against the pervious month using the same units measured month-over-month.

Advance retail sales could be seen as an important indicator because it hints at the sentiment of consumer spending. Consumer spending is highly correlated to the general health of the economy, as consumers account for two-thirds of US GDP.

According to the Census Bureau, advance estimates of U.S. retail and food services sales for May, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $404.6 billion, a decrease of 0.2 percent from the previous month, which was in-line with analysts' estimates, but 5.3 percent above May 2011.

Retail trade sales were down 0.2 percent from April 2012, but 5.0 percent above last year. Nonstore retailers sales were up 12.4 percent from May 2011 and motor vehicles and parts dealers were up 10.0 percent from last year

April's advance retail sales were revised down to (0.2) percent from 0.1 percent.


ACTION ITEMS:

Bullish:
Traders who believe that advance retail sales are a leading indicator for the US economy, you might want to consider the following trades:
  • Long general retail companies like JC Pennny (NYSE: JCP) because they will likely benefit when general retail conditions are favorable, and visa versa.
  • Also, long Consumer Discretionary companies like Target (NYSE: TGT) or the Consumer Discretionary ETF (NYSE: XLY)
Bearish:
Traders who do not believe that retail sales are a leading indicator for the general US economy, you may consider alternative positions:
  • Long Consumer Staple companies like Procter & Gamble (NYSE: PG) and Colgate (NYSE: CL) because even if retail conditions are unfavorable, consumers still need to buy staple products like shampoo and toothpaste.
  • Also, short big-ticket appliance makers like Whirlpool (NYSE: WHR) if advance retail sales are worse than expected.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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