Regional Household Economic Stress and Retail Sales Fluctuations

Abstract

Economic stress indices are used to monitor business cycle conditions in several regions. Although the deployment of these tools is spreading, there have been relatively few efforts to empirically assess the performance of these gauges, especially at the regional level. This study takes advantage of one such index that is published monthly and has more than 15 years of historical data. Results obtained confirm an inverse relationship between household economic duress and retail sales activity, but it is not found to be statistically reliable over the long-run. Deviations from equilibrium are found to last for 142 months. More relevantly, a 1-point increase in the index is associated with a $3.48 million decline in total commercial activity. Additional testing using data for other regions and/or economic variables appears warranted. Empirical analysis that examines additional potential short-run linkages for El Paso may also prove useful.