Economic data come in all shapes and sizes. You can learn a lot about the flow of goods and money around the world by looking at the current accounts of the United States and other global economic powers. If you're more interested in specific parts of the economy, you can get more detailed information by looking at industry-specific reports like auto sales or new-home construction.
Many releases of economic data have already done a lot of the legwork for you. By collecting data from many different sources and compiling it into easily understood tables and explanatory summaries, the agencies and organizations that prepare these economic reports save you the trouble of digging for information yourself. Not every piece of important information is spoon-fed to investors in this manner. However, even when no independent third party takes responsibility for building a statistical report, raw information from many different sources becomes available at about the same time, making comparisons and synthesis easier.
You can see an example of data becoming available nearly simultaneously in the monthly reports in which retailers present their sales figures and comparisons. Although this information is most obviously valuable in evaluating the individual companies themselves, you can sometimes draw conclusions about overall economic conditions by seeking common threads among the retail sales reports of companies in the retail industry.
The basic concept
Near the beginning of each month, dozens of retailers report information about their sales figures for the previous month. The most commonly reported figure released by companies is called same-store sales; this figure directly compares figures only for those stores that were open during both the previous month and the month before. By removing results for new stores that were opened during the previous month and for old stores that went out of business, same-store sales removes the effect of a particular company's growth strategy or contraction and allows analysts to focus on how the behavior of consumers has affected sales levels.
The companies that report same-store retail sales span the breadth of the U.S. economy, representing many different industry subclasses and types of stores. Big-box retail stores like Wal-Mart
A typical report usually includes more than just a same-store sales comparison. Overall sales figures are generally presented, along with the number of stores the company had in operation during the month. If a given company operates stores under several different brand names, then the release often includes a breakdown of results by brand name, allowing investors to evaluate the success of the company's branding strategy. Because many of the reports take the form of a press release, companies often take the opportunity to make comments about upcoming promotions, new product lines, or strategic decisions that they believe will enhance their financial results.
As a previous article on consumer confidence discussed, consumers play a vital role in the economy. After all, no matter how good a job manufacturers and service companies do to create a valuable product, it all means nothing if no one chooses to buy it. Because retailers are a point of frequent contact with the average consumer, measuring their results serves as a gauge of the consumer's willingness to spend in general.
So far, September results have been fairly positive. However, it's always difficult to draw conclusions from a single month's data. For instance, many retailers point to weather considerations in analyzing their data; this month, cool weather may have helped to persuade shoppers to make seasonal purchases of fall and winter clothing earlier than in some years. Even though most news stories will focus only on a particular month's release, you should generally look back a few months to look for overall trends. Especially as a new season is starting, aggregating results over two or three months makes it easier to weed out unique factors and to make valid comparisons with data from prior years.
Looking at how various types of stores performed can also provide some insight. This month, many retailers selling products aimed at children and young adults did extremely well. Traditional department stores also performed well. Meanwhile, Wal-Mart predicted a drop in sales. If such trends continue, you may be able to draw conclusions about the relative strength of various retailers. Yet especially among clothing retailers, fashion is fickle, and so a store that seems like the next big thing one month may find itself on the has-been list within a short period of time.
Investors may also take particular industry groups and make comparisons among competitors. If most retailers in a given category did well but one company fared poorly, you may want to examine the straggler more closely to determine what mistakes it may have made. Conversely, if one company is blowing away the competition, you may find strategies for success that you can look for among other categories of retailers.
In summary, although retail sales releases come one by one from individual companies, you can evaluate them as a group to make inferences about the state of the consumer economy. Different levels of success among various companies and industry groups can inform your investment decisions by letting you avoid troubled stocks and focus your efforts on the companies that are most likely to excel.
Wal-Mart and Gap are both previous recommendations of the Inside Value newsletter, which looks for promising companies that aren't fully appreciated by the Wall Street community. Each month, Fool analyst Philip Durell looks at new stocks and gives valuable information about how he analyzes companies. Take a free look by signing up for a 30-day trial membership. American Eagle and Costco are Motley Fool Stock Advisor picks.
Don't blame Fool contributor Dan Caplinger for increasing retail sales; he stays away from the mall as long as he can. He owns shares of Starbucks. You'll never need to ask for a refund with the Fool's disclosure policy.