What Is Retail Sales?

Definition, What's Measured and How to Use It

What is retail sales?
Retail sales is the end product sold to the consumer. Photo: Kondoros Éva Katalin/Getty Images

Definition: Retail sales are purchases of finished goods and services by consumers and businesses. They occur at the end of the supply chain

The beginning of the supply chain includes commodities and other raw materials. The middle of the supply chain is wholesale sales. These are the goods and services sold to businesses that create final retail products. 

Retail sales statistics measure how much demand there is for these finished goods and services.

These statistics are an important economic indicator. That's because consumer spending is almost 70 percent of total U.S. economic output. For more, see Components of GDP.

The retailing industry is the distributor of these goods and services. This industry includes brick-and-mortar stores like Target and Macy's. It also includes online retailers, such as Amazon. It includes home sales and TV retailers. In addition, the retail industry also sells services. Examples include restaurants, hotels and hairdressers.

The most critical time in retail sales is the holiday shopping season. It accounts for almost 20 percent of retail sales. The season begins on Black Friday. It then includes Cyber MondayGreen Monday and every shopping day through Christmas.

What's Measured in Retail Sales?

The Census Bureau surveys 4,900 firms each month to collect retail sales data. The report shows the total sales for the prior month.

It also displays the percent change for that month. It reports on the percent change in year-over-year sales for the last 12 months. For more, see Current U.S. Retail Sales Statistics.

The Census Bureau doesn't adjust for inflation in the report. That means volatile gas and oil prices affect its results.

That can be misleading. Gas prices typically rise in the spring. Traders bid up the prices in advance of anticipated demand for the summer driving season. When that happens, it seems like retail sales are skyrocketing. Sales seem to drop like a stone in the late summer or autumn. That's when gas prices fall as vacationers return home. 

Components of Retail Sales

The largest category of retail sales (20 percent) consists of auto and auto parts stores. Since it's such a large component, the Census Bureau report also shows retail sales without auto. 

Department and discount stores comprise 13 percent of total sales. Grocery stores are slightly less. Gas stations and restaurants are a little under 10 percent each. Apparel stores and drugstores come in at 5 percent each. Furniture stores and consumer electronics are around 2.5 percent each. 

Here are all 13 retail categories: 

  1. Auto dealers, including auto parts, new and used vehicle sales.
  2. Non-store retailers, which means online retail sales.
  3. Department stores.
  4. Apparel, such specialty clothing stores.
  5. Electronics and appliance stores, including big box retailers like Best Buy.
  6. Food and beverage stores, including grocery and liquor stores.
  7. Building and garden supply stores, such as Lowes and Home Depot.
  1. Sporting goods/hobby stores, like Hobby Lobby and Michaels.
  2. Health/beauty shops, including drugstores.
  3. Furniture stores.
  4. Hospitality and leisure, including hotels, restaurants and bars.
  5. Gas stations.
  6. Miscellaneous. (Source: “How Surveys Are Collected,” Census Bureau.)

How to Use the Retail Sales Report to Predict Economic Growth

Retail sales are used to predict consumer spending trends. That's because the report comes out monthly. U.S. economic growth, as measured by gross domestic product, is reported quarterly. So strong retail sales predict a better GDP report next quarter. 

But you must also look at year-over-year retail sales. That's because GDP is an annualized number. That means it gives an estimate for a year. GDP growth compares this annualized figure to the prior year. 

Keep in mind that GDP growth uses so-called real GDP figures.

They eliminate the effects of inflation. The year-over-year retail sales reports use nominal GDP figures. GDP growth reports and YOY retail reports could have significant differences if inflation is very high or if there is deflation

Therefore, when using the retail sales report for forecasting, you should also look at other statistics. Most important, look at orders for durable goods. That's another great leading economic indicator

Pay attention to forecasts of specific holiday sales. The National Retail Federation surveys shoppers to find out how much they plan to spend for the major holidays. The report on Halloween spending provides early clues for the holiday shopping season. Black Friday sales are also obviously important. The NRF also reports on retail sales for Valentine's Day, Mother's Day, Father's Day and Back to School.