Essay on Direct and Indirect Signals of Retail Sales

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1. Direct and Indirect Signals/Retail Sales A key aspect of economics is the collection and analysis of the vast amounts of data generated throughout global economies. The interpretation of this data can provide important signals for the future direction of the economy. There are two forms of signals that arise from the various economic data that is collected. The first are direct signals, which measure the movement in what is being measured. These usually take the form of a given macro indicator. The second type of signal is an indirect signal. These can be based on the perceived causation or correlation between two indicators. Indirect signals occur when one variable will tell something about another facet of the…show more content…
By focusing on the different segments economists can determine if underlying trends support the headline numbers in total or have possibly skewed the overall numbers. In addition to the direct signals provided by the information, retail sales data also provides an even greater amount of indirect signals when combined with additional indicators. As soon as the information is released, investors around the world use it combined with other economic data released that day to predict the short-term direction of a variety of financial markets, most notably the equity, fixed income and currency markets. It is also combined with information on individual companies to estimate future potential revenues and earnings as well as possible subsequent moves in their stock prices. Economists use the retail sales data in their models to make predictions on a wide variety of economic issues. Again, because retails sales accounts for such a large proportion of GDP, it is used along with other factors as a way to estimate the direction of the quarterly and annual GDP numbers. Used in conjunction with data such as the consumer price index, it is also very relevant for inflation forecasts as the data can offer glimpses into the affects of rising or falling prices. This in turn is closely tied to predictions for the direction of future interest rates as potential additional government action. Finally the retail sales data can be used to estimate

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