Retail sales are a closely watched economic indicator because of the magnitude of the proportion of gross domestic product (GDP) reflected in the retail sales measure. Consumer spending (the bulk of which is represented by retail sales) accounts for approximately two-thirds of GDP. Therefore, a deteriorating trend in retail sales will be a cause for concern by economists, government leaders, business leaders, and consumers because the trend may indicate that the economy is either (a) heading for recession or (b) already has entered recession. Conversely, an upward trend in retail sales may be a cause for optimism (it will not be a cause for alarm) by economists, government leaders, business leaders, and consumers because the trend may indicate that the economy is (a) functioning efficiently or (b) is poised for strong growth. If the upward trend in retail sales is too strong, however, there may be a concern that undesirable levels of price inflation may be in the offing; a concern that could trigger action by the Federal Reserve Board to moderate the potential for the development of higher than desired levels of price inflation. The typical response by the Federal Reserve Board in such scenarios is to raise interest rates.
Retailers tend to measure same store year-to-year performance for stores that have been operating for at least one year because such measures provide them with indications of (a) how well their strategies are working in established markets and (b) how specific market areas may be changing for the better or the worse. New store sales are important to retailers; however, such sales frequently are much higher than the news stores can sustain over the long-term.
For the Department of Commerce, the distinction between same store year-to-year performance and the year-to-year performance of all stores is not as important as it is to retailers. The primary focus of the Department of Commerce is
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