Retail Sales and Financial Markets

According to data from the National Retail Federation, the US Black Friday weekend was a record breaker. A record 247 million shoppers visited retail stores over the Black Friday weekend, a 9.3% increase over last year’s 226 million. The average holiday shopper spent $423 which was higher than the $398 spent last year. Total spending is estimated at a whopping $59.1 billion. 

Very good numbers to be sure, and possibly strong enough overall sales to help some struggling retailers like Best Buy (BBY). Retail sales are not, however, very useful for predicting the future. The important point to remember is that retail sales are not a leading economic indicator but a coincident indicator. Retail sales tend to peak and trough in line with other economic indicators like GDP or industrial production. Coincident indicators are useful for telling us something about where the economy is, not where it is going. The chart below shows how retail sales have closely matched the S&P 500.There are no obvious examples of retail sales leading the S&P 500 and, therefore, retail sales may not be very useful in helping to forecast financial markets.