New retail sales categories help stock analysis
About three weeks ago, the Census Bureau reported its advance durable goods report in its new NAICS format with greater detail on industry classifications. This was also seen with the manufacturing shipments, inventories and orders report a couple of weeks later. Today's retail sales report by the Census Bureau incorporated the NAICS industry classification rather than the SIC classification.

The changes in retail sales categories are not dramatically different, but more descriptive. Total retail sales levels have been revised slightly higher, but this also includes additional components to the total. The report also has a new name: Retail and Food Service Sales. The new title of the series is due to the fact that the old component, "eating and drinking places" was reclassified and taken out of the nondurable goods component. The table below describes the changes in greater detail. Incidentally, retail sales are no longer grouped by type of store - durable goods or nondurable goods.

Just like before the revision, these major categories are also broken down into smaller subcomponents, although the smaller categories are not available with the advance report (but are available either a couple of weeks later or with a one-month delay). The advantage of the NAICS system is that the detailed components of retail sales are more precise and it is easier to use for stock analysis.

For instance, let's say that a booming housing market suggested to you that furniture companies would make good investments. You could compare the history of the company you were interested in buying relative to furniture store sales. The old SIC classification also included electronics and appliances in the furniture component. The new NAICS classification separates these two sectors for a more reliable reading.

Moreover, the more detailed categories were previously included in the "other" category in retail sales before, but now have their own classification. For instance, sporting goods used to be the leftover component of durable goods; non-store retailers (electronic shopping and mail order) used to be the leftover in the nondurable goods component.

All in all, the reclassified retail sales report will allow long term investors to gain a better sense of the direction of the various components of retail sales and apply this to their fundamental company analysis.

Evelina M. Tainer, Chief Economist, Econoday