The economy and the fixed income markets: Must-know latest updates (Part 4 of 11)
The pattern in consumer spending is often the foremost influential factor on stock and bond markets. Reflected in the same-stores sales, also known as comparable store sales, it measures the change in the sales over a defined period, usually year-over-year for all stores open for more than a year.
After nearly five weeks of steady growth, the same-store sales for the week ended March 22, 2014, dropped by 1.5%, according to the International Council of Shopping Centers’ (or ICSC) index. As Easter Day is falling on April 20, 2014 compared to previous years’ March 31, the March figures are distorted, and sales might see a push in April.
However, year-on-year sales are still trailing on positive pathways and the overall retail sales are picking up momentum. According to the ICSC Index, the yearly retail sales have grown by 1.7% compared to 1.5% growth last year. The Redbook Index yearly sales rose to 3.1% compared to previous week’s year-on-year sales growth of 2.8%.
The ICSC-Goldman Sachs and Redbook Indices
The ICSC-Goldman Index provides a weekly snapshot of the U.S. retail chain store sales, while the Redbook compiles the index by collecting and interpreting performance estimates from retailers. Both the indices measure comparable store sales at major retail chains excluding restaurants and vehicle dealers, accounting for roughly 10% of total retail sales.
Stock market (SPY) generally bounces with the growth in the consumer spending, which is also an indication of rise in demand. Other things being constant, higher demand leads to rise in the price inflation, and in turn, directs an increase in the market interest rates. Market interest rate is one of the prime determinants of change in the bond prices. With a rise in the interest rates, the bond prices (BND) decline and vice versa.
The Retail Same-Store Sales Index released this week also has direct bearings in major retailers reflected in the Market Vectors Retail (RTH). The ETF tracks the performance of 25 of the largest U.S. listed publicly traded retail companies including Wal-Mart Stores (WMT) and Target Corporation (TGT) and is benchmarked to Market Vectors US Listed Retail 25 Index. Increase in the consumer spending and retail same-store sales uplifts the ETF performance, whereas, decline in the sales reflects under performance of major retailers. This impacts the overall ETF performance negatively.
While the retail sales released this weekly suggested short-term volatility, the momentum will remain over the long run. Further, considering the fact that the weather has eased off lately and the U.S. economy is on a progress wheel, coming weeks and months may look more promising for retailers. However, to know if the economic growth will have same meaning to home builders and realtors, read the next part of the series.
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