Core Retail Sales: What They Are and How They Work

What Are Core Retail Sales?

The term core retail sales refers to an economic indicator that tracks the month-to-month increase or decrease in U.S. consumer spending in most retail categories. Two monthly retail sales numbers are commonly reported by the financial news media—retail sales and core retail sales.

Core retail sales refer to all consumer spending excluding automobiles, gasoline, building materials, and food services while the broader retail sales reflect the monthly estimate of all consumer spending. Prices for these products tend to be more volatile and skew the overall number.

Understanding Core Retail Sales

The U.S. Census Bureau compiles the retail sales number. It is reported as a monthly and year-over-year (YOY) increase or decrease in spending. Together, core retail sales and retail sales give economists and investors a sense of the direction of the U.S. economy.

Consumer spending accounts for more than two-thirds of the U.S. economy. That makes the core retail sales number (and the more comprehensive retail sales numbers) important indicators of the health of the overall economy.

The retail sales number is based on a comprehensive report released monthly by the Census Bureau, which is a division of the U.S. Department of Commerce. The data is released in the middle of each month for the preceding month. Investors and economists watch the numbers to see whether retail sales are going up or going down, and by how much.

The data is also used extensively by various government bureaus. The numbers go into the calculation of the gross domestic product (GDP), are used to develop consumer price indexes, and help analyze current economic activity. The Federal Reserve uses the numbers to assess recent trends in consumer purchases.

How to Read the Retail Sales Numbers

The percentage increase or decrease from month to month gives a good indication of whether the economy is contracting or expanding, and how fast. Very strong or very weak retail sales can put upward or downward pressure on prices.

As retail sales surge, upward pressure on prices may eventually take hold, especially if the numbers continue to rise month after month. The opposite is true when sales plummet for a prolonged period. Prices are slashed as consumers spend less. 

Estimates of monthly retail sales data are collected and compiled as the Monthly Trade Report of the U.S. Census Bureau. This data measures total retail spending across the nation. The monthly rate of change is expressed as a positive or negative percentage. The data covers sales for durable and non-durable goods at the retail level.

The Census Bureau releases retail sales data for both month-over-month and year-over-year percentage changes. Month-over-month data is the most important of the two as it can alert watchers to an unexpected trend in the making. Markets are also more likely to react to deviations from expectations in these numbers.

The Bottom Line

Core retail sales looks at consumer spending, minus automobiles, gasoline, building materials, and food services because they are more volatile and not a true indicator of consistent consumer spending patterns. Core retail sales serves as an indicator of the economy, where an increase in core retail sales signals a healthy, expanding economy, while a decrease in core retail sales signals otherwise.