The U.S. Census puts out a report each month called the Advance Monthly Sales For Retail Trade and Food Services. Why should we as economists care about what this report says? I generally try to care about any report that the Fed deems important. So why does the Fed look at retail sales??? Retail Sales is used to compute Personal Consumption Expenditures, which is the most important component of calculating the nation's GDP. Changes in real GDP correlate well with changes in real retail sales.
One thing to keep in mind is that retail sales is only measured in nominal terms, which means that no adjustment is made for inflation. This makes it difficult to tell whether a jump in the numbers came from consumers actually purchasing more or paying more to cover higher prices charged by retailers. Also the initial retail sales releases tend to be extremely volatile and thus misleading. This is partially because the advanced estimates are based on a relatively small sampling size. A three month moving average of the data provides a more accurate picture of whats occurring in the economy. For a look at the percentage changes go to table 2A which shows that retail sales dropped 1.4% in May but is still up 7.4% from last May. If you exclude motor vehicle sales and auto-related products (which tend to be extremely volatile) we see that the fall in the retail sales numbers is by a smaller 1.1% which (according to this number) is still up 6.1% from last May. So what exactly are U.S. consumers purchasing? Apparently gasoline which is up in usage 20.2% since last May (although this increase may represent an rise in gasoline prices). Furthermore, we see that the end of the April 30th homebuyer tax-credit brought about a drop in demand for building materials( -9.3% drop from last month). Overall the report is generally a disappointment among the economics community (check out WSJ's Economists React: 'Weaker Underlying Picture Revealed' for Consumer) as it suggests we have a struggling consumer. The Census Bureau should track polo hat sales: If demand for ridiculous items picks up then the "true American consumer" will be perched back up on their throne.