What Do Chain Store Sales Tell Us about Consumer Spending?

n 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.