Jason Stipp: I'm Jason Stipp for Morningstar.
We got the government's retail sales report on Wednesday. It showed flat growth from July to August, stoking concerns about continuing stagnation in the economy.
Here with me to dig into the numbers is Morningstar's Bob Johnson, director of economic analysis.
Thanks for joining me, Bob.
Bob Johnson: Good to be here.
Stipp: So, we did see no growth between July and August in the retail sales report. I think this concerned a lot of market watchers, economy watchers. When you dig into the report, what did you see there? What was behind that somewhat disappointing result?
Johnson: Sure. We had thought this would be a weak month for retail sales. There were a number of factors working into it. One is, certainly, Irene hit right at the end of the month when a lot of [retailers'] end crucial sales [happen], so that certainly didn't help.
Weather: It was not as favorable a month; it had been extremely favorable in July, but not so much in August. So, that certainly didn't help the numbers, as well. We didn't get the cool weather we needed to move fall merchandise.
So, those were certainly factors. I think some retailers tried to pass along price increases, so that probably didn't help the report, either.
So, we'd been anticipating a relatively low result of, a tenth of a percent or two. Instead we got zero.
Stipp: So, what were some other things that were up and down? Were a lot of the things just flat across the board? What was the trend that you saw in there?
Johnson: Well, there were a lot of special factors that were down. Number one was autos. And remember, we still haven't got supplies back to normal, and we won't have supplies back to normal from the Japanese transplants until the October sales report. So, autos are still hurting; that was down 0.3%.
The second big downer was restaurants. Restaurants were one of the areas that were particularly hard hit, and everybody kind of publicized they would be hit by Irene, because nobody could go out and nobody could go to the restaurants to work across broad swaths ... of the East. So, I think that was probably another big factor in the numbers that was out there.
Furniture has been on a death march, down a couple of tenths every month for many months, and that continued. So, that was another category that was down. And apparel was down a little, probably on higher cotton prices, higher apparel prices.
Other than those very specific four categories, all the other categories in the report were up, and some a fair amount. So, it wasn't a uniformly awful [report].
Stipp: Okay. So, when you look at this report--and you've always said, we have to look at more than just one report--can you put this report into context? What's the trend that we have been seeing and how does this report factor into that trend?
Johnson: The best way to look at the report is to look at it on a year-over-year basis, because you get these seasonal factors, and a lot of different government reports we've seen kind of jump around. If you look at the year-over-year number and the three-month moving average, you kind of lose the effect of a hurricane here and an earthquake there. If you do it three months at a time, they tend to work themselves out, and if you look year-over-year, you take some of the seasonality issues out of the equation.
We've been at about 6% year-over-year growth in retail sales for almost all of this year, and this number didn't really move the needle. We're still right at, I think, 5.9% when you calculate it out this month. So, again, I'd stress that's not a great number if we've got 2% to 3% inflation, but we're not falling into the abyss. ... We haven't got this wild up and down that some of those government reports would seem to suggest that we have. We've got a steady-state, slower-than-we'd-like recovery.
Stipp: When you look at the shopping center data, one of your favorite data points to look at recently, what is that telling you right now? Did you also kind of see that flattening out a little bit?
Johnson: Well, there we had 4.6% growth on same-store sales from shopping centers compared this August to last August, which was the same type of ratio that we had in July. So a decent number, but certainly not a heck of a lot better, so that was kind of common between there were two reports. But it was up. And again, the big difference is there's no restaurants and no cars in that report. ...
Stipp: So in that month some of those special factors aren’t included there, so we did see the growth coming through in the shopping centers?
Johnson: Exactly. And to support my point about Irene clipping the numbers a little bit, these shopping centers reports--you can be addicted to looking at the numbers, because they do come every week--and one of the things that we noticed there is that we had a relatively weak year-over-year number with Irene, under 3%, and now we've popped back to 3.3% for this week. So we lost a little bit one week and got a little bit back this week.
Stipp: I want to look ahead, Bob, and talk about what some of these factors mean for GDP estimates. We have some data and some things we can lock into the model for what you’re expecting for GDP. What is it telling you right now and has any recent data changed your mind about what your forecast for GDP could be?
Johnson: Sure. Now, again, there are a bunch of very interesting things going on right now with the economy. Keep in mind, the worst months of the recovery were the first quarter, which was four-tenths of a percent. Then we got a little better in the second, at 1% annualized GDP growth. Now I’m thinking in the third quarter, we’re going to get something like 2.5%. So we've got an improving trend. I’m not sure I buy that, but part of the low numbers [earlier in the year] were due to weather and the tsunami, and some of this [improvement] is bounce-back. So, probably, if you look at all of them together, probably the best way to do it, and there you’re probably in the 1.5% to 2% range for GDP growth.
But that single point, 2.5% [for 3Q], may catch a few people by surprise. By the way, that number is kind of locked and loaded. It’s hard to do below that, because the import-export number was so wonderful and so large early in the quarter, and also consumption was so high for the month of July--part of it was weather, part of it was cars, again--and so you put those together, even if August and September were basically flat, it will be hard for GDP to be below 2.5% on an annualized basis.
Stipp: So it sounds like when you step back and look at all the factors, we are seeing some growth here in the economy, but it’s really nothing that’s going to light the world on fire.
Johnson: Exactly, and probably just enough to match out the population growth. So that’s the bad news. I don’t want to pretend that things are good; they’re not. But certainly, we aren’t going into the great abyss, and things aren’t falling off.
In fact, another interesting thing that I looked at the other day was, we’re in the kind of low 400s right now in terms of initial unemployment claims. At the same time last year, we were at 500,000 claims. So people worry that this time it’s so bad and worse than the last time. Well, you know what? When we had the last recession scare, which was a year ago, claims were an awful lot worse than they are today, so maybe there is some cause for optimism.
Stipp: All right, Bob. We’ll certainly try to stay hopeful on that front. Thanks for joining me today and for your insights.
Johnson: Thank you.
Stipp: For Morningstar, I’m Jason Stipp. Thanks for watching.
