The Book of Alternative Data

CHAPTER 17Consumer Transactions

17.1. INTRODUCTION

A large number of companies cater directly to consumers. These companies are present in many industries, including the retail, technology, and leisure sectors. If we can understand consumer spending at these firms through alternative data, this can provide insights into the financial health of these companies on a relatively high-frequency basis. This contrasts to existing ways that rely on quarterly earnings releases published by publicly traded firms. It might also be the case that digging deeper into consumer transaction data can give us more granularity about their spending behavior than a company's earnings release, and hence it can offer more insights.

An investor might wish to compare consumer spending patterns at different firms in a particular sector. Alternatively, economists could look at consumer spending as a whole to get a better understanding of the economy at a macro level. It is extremely unlikely that any consumer transaction dataset will include every single consumer. This is also true of other datasets that are seeking to measure the consumer activity such as footfall data. Instead, they are simply a sample of the population we are examining. Hence, it is key to ensure that the panel of consumers used in such a dataset is representative of the broader population. For example, if we are seeking to measure consumer spending in the United States and our panel is largely made up of coastal cities, such as New ...