What is the retail sales report?
The retail sales report is a monthly measurement of consumer spending, this is an important indicator because it has a big impact on gross domestic product figures which show the economies overall strength. It is also a good indicator of possible inflation issues, high consumer spending could mean inflation is on the rise. When people are spending this means the economy is growing with businesses doing well, employing more, paying more, leading to more spending and investments, but when spending is low this means the economy is slowing down resulting in businesses earning less and paying less further reducing spending. When retail sales are too high this could cause the economy to grow too quickly which could eventually lead to harmful levels of inflation, to combat this the central banks will increase interest rates to make borrowing more expensive and saving more favourable, this will reduce the economies growth back to a healthy level. When retail sales are low this could lead to a slow economy and a possible recession if inflation is too low, to stop this the central banks will hike the interest rates to reduce the cost of borrowing and make saving less favourable helping the economy to speed back up to a health level.
How to trade the retail sales report
When retail sales reports are released the market will increase in volatility due to its direct link to GDP and inflation which could lead to interest rate changes. High retail figures mean people are confident in spending and have more money to spend, this means a growing economy which could lead to interest rates being hiked, because of this the value of the currency increases. The opposite happens when retail sales are low because of the slowing economy there is a higher possibility of interest rate cuts, because of this the currency value decreases.