Joseph Ellis (Ahead of the curve, 2005, p. 109) considered this as the most significant leading economic indicator of stock market performance. He considers unemployment a lagging indicator because employers typically delay hiring until after the economy improves and similarly delay laying off employees until after it starts deteriorating. Wage price growth is a good predictor of consumer spending, the major driver of advanced economies, because most consumer cash comes from wages. It surpasses consumer sentiment, which Ellis believes has little predictive value, and the “wealth effect” of higher stock and home values, because they are “back burner” assets that consumers generally don’t spend.
Retail Sales Growth is calculated by interviewing retailers by phone each month about their inventory turnover, focusing on food and liquor; household goods including furniture, electronic goods, hardware and gardening; clothing and footwear; department stores; restaurants; and specialty retailers selling books, drugs, and recreation equipment. Figures are real (inflation-adjusted) and seasonally adjusted to account for calendar year variations, such as the difference in weekly sales that would occur if Christmas fell on a Sunday and was preceded by 6 days of sales or fell on a Thursday and preceded by only 3 days of sales.
