Retail Sales vs Household Spending

The good news is that retail sales increased in July, up 0.5 percent from June and up 8.5 percent from July 2010. The bad news is that retail sales are not the same as household spending and can mislead trend trackers.

Retail sales are an aggregate, and generally increase with the population. This explains why retail sales have never been higher. Because retail sales data are released monthly, they often make headlines. A rise in retail sales can give false hope to those looking for a turnaround in the economy.  

Household spending is the better measure of economic wellbeing, but household spending data are released only once a year rather than every month. Average household spending trends are not affected by population growth. They reveal how actual families are faring, the items on which they are spending more and the items on which they are cutting back. Average household spending fell 5 percent between the peak spending year of 2006 and 2009, after adjusting for inflation. The 2010 household spending figures will be released next month.