FOREX ECONOMIC INDICATOR:RETAIL SALES

Retail sales is one of the most important economic indicator for an economy. According to investopedia.com, retail sales is "An aggregated measure of the sales of retail goods over a stated time period, typically based on a data sampling that is extrapolated to model an entire country." Increase in retail sales indicates that the consumer has more money at hand, which means consumers have more income. It also indicates that the economy has a higher inflation rate.

Source:elsoar.com

Higher retail sales has bullish effect on a currency because it indicates that the people have more money at hand, economy has higher inflation, and we already know that higher inflation leads to higher interest rate expectation. Higher retail sales can help the traders in predicting the some other economic indicators related to the inflation, e.g CPI, PCE, durable good orders, manufacturing production etc.Higher retail sales also proves that the economy has higher demand.

It is not to be assumed that the retail sales is an important economic indicator for all countries. Importance of any economic indicator depends on the economy of a country. For US economy, retail sales is a very important indicator.

Core Retail Sales is generally defined as the retail sales excluding the prices of extremely volatile goods and services. It is believed that the core retail sales is more accurate than retail sales. According to the investopedia.com core retail sales in USA is defined as "Aggregate retail sales excluding automobile and gasoline sales, which are excluded due to their volatility."

In forex trading, retail sales is an important economic indicator because it explains the inflation situation in the economy. By understanding the inflation in the economy, traders can predict the monetary policy decisions by the authority to monetary policy.

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