Academic journal article Federal Reserve Bank of New York Economic Policy Review

What Do Chain Store Sales Tell Us about Consumer Spending?

Academic journal article Federal Reserve Bank of New York Economic Policy Review

What Do Chain Store Sales Tell Us about Consumer Spending?

Article excerpt

In the last several years, reports from major retail chains have been closely watched by journalists, forecasters, and financial market participants. Interest peaked during the 1995 Christmas season, when chain store reports showing weak sales fueled growing concern about the consumer sector. Under headlines such as "Retailers Call Sales in December Worst since '90-'91 Recession," news coverage of the reports moved from the business page to the front page.(1) This attention raises an important question: While chain store reports are clearly an important measure of the health of large retail companies, are they also useful in assessing and forecasting consumer spending as a whole?

This study is the first comprehensive examination of the value of chain store data as macroeconomic indicators.(2) We begin by considering important structural changes in the retail sector and their implications for interpreting the chain store data. We then turn to formal statistical tests of the linkages between chain store data and the official measures of overall retail sales and personal consumption expenditure.

Our empirical tests provide mixed support for the use of chain store data. On the one hand, we find that weekly indexes and monthly reports from individual companies are too erratic to be useful for forecasting. On the other hand, we find that monthly chain store indexes, if given the appropriate weights in forecast models, add significantly to the accuracy of in-sample and out-of-sample predictions for several measures of consumer spending. Overall, models that combine economic variables with the two major chain store indexes provide the best forecasts.

WHAT ARE CHAIN STORES?

In press reports, the term "chain store" is used more or less interchangeably with "department store," "retail chain," "broad line," and "major retailer." To clarify how this term is generally understood, we relate it to specific categories in the U.S. Department of Commerce taxonomy of retail establishments (Table 1).(3) All chain stores could be placed in the broad Commerce Department category of general merchandise, apparel, and furniture (GAF) Within this category, chain stores encompass virtually all department stores including national chain department stores such as Sears and J.C. Penney, conventional department stores as Federated/Macy and May, and discount department stores such as Wal-Mart and Kmart. Note that the term "chain store" applies to all major department stores, even those that have a limited number of locations.

Table 1
RETAIL ESTABLISHMENTS IN 1992
                                       Average
                                       Sales per
Commerce              Number of        Establishment   Average
Department            Establishments   (Thousands      Employees
per
Category              (Thousands)      of Dollars)
Establishment

Total retail            1,526.2            1,242             12
GAF                       465.1            2,026             19
General merchandise        34.6            7,089             60
Department stores          11.0           16,946            156
National chain              1.9           18,873            179
Conventional                2.4           20,832            203
Discount                    6.7           15,032            134
Other                      23.6            2,496             15
Apparel                   145.5              699              8
Furniture                 110.1              847              6
Miscellaneous
shopping goods            127.3              520              6
Other retail            1,063.1              900              9

Source: Department of Commerce, Bureau of the Census (1995).

Notes: The Commerce Department defines an establishment as a
"single physical location at which business is conducted." The last
column of the table reports the average number of employees per
establishment for the week of March 12, 1992. … 
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