The Upward Trend in Retail Sales

Jason Stipp: I'm Jason Stipp for Morningstar. March retail sales report was
released on Wednesday, and it surprised a lot of market watchers
with a 1.6% increase. Is the consumer finally off the mat? Here
with me to give his take is Morningstar's Bob Johnson. He is the
associate director of economic analysis. Thanks for joining me,
Bob.

Bob Johnson: Nice to be here.

Jason Stipp: So, this report did look pretty good. It beat a lot of analysts'
expectations; 1.6% seems like a good number. How good is it?
How good is this report?

Bob Johnson: I think it was a very good number. I think it was above
expectations that were out there, and it's a very broad measure of
consumer spending. It's one that I've had trouble forecasting,
because so many things go into it. It's $4 trillion of our $14 trillion
economy is reported on in this report--everything from gasoline
sales, to restaurant sales, to things you buy in the store.

It's a pretty comprehensive number, and to see it up that big--that's
1.6% month-over-month. That's not annualized. If you look at the
number year-over-year, what we did, we're up 7.6% with almost no
inflation. Other years we've had maybe as much growth, but
maybe with 4%-5% inflation; this time it's 1%-2%.

Jason Stipp: Really, when you're looking at in perspective, it seems like a very
good increase. So, I guess the second question for you, then. Is this
a fluke? Is this a one-time thing? We saw some things in the past
where maybe consumers were at home because of the weather. Is
this just a brief bounce back for that?

Bob Johnson: Well, I think this was a pretty stunning number. It was good. I
think the April number will probably end up being relatively flat.
There's a couple of special factors there. Easter slid one month
versus the other. The weather was unusually warm right at the end
of March, which really boosted clothing sales, for example. That
certainly helped the numbers, but the general trend has been so
positive, and I really did like this report.

Jason Stipp: What has the trend been, then, over the last few months?

Bob Johnson: Sure. This is the fifth increase out of the last six months. Some
people would say, "Oh, well this just happened." People thought
Christmas was going to be a disaster. Everybody thought we were
going to have a down Christmas. It ended up being up; depending
on which measure you used, up 3%-5%.

It was like, "Well, maybe it was a special thing," or whatever, and
then this number was better, "Well, it was the weather," or
whatever.

But if you look at it, we are well off the mat. The consumer has
done a lot better.

Jason Stipp: If we look into this report, you mentioned before that there were a
lot of broad-based gains. Autos actually were a pretty big
component of the increase that what we saw. Is that good news or
bad news? How do you view autos in the context of the whole
report?

Bob Johnson: Sure. If we strip the autos out, we were still up 0.6%, which is very
consistent with the 7% year-over-year number I gave you. It's very
consistent. The autos were strong. There were a lot of incentives
on, so that moved the number up.

But one of the side effects, in the very short run, with autos is that
if people are out shopping for cars, doing their budgets, cutting
back just a little bit so they can afford that car, retail sales in one
particular month tend to suffer just a little short-run.

Jason Stipp: Just because they're holding some money back for that big-ticket
purchase. Because they're buying autos, though, could it be, longer
term, more money in more workers' pockets because they're
making these big-ticket items with all these components?

Bob Johnson: Yeah. We talk about it all the time. The autos obviously employ
people that are pretty high wages, pretty long hours per week. Over
time, as more auto workers get called back, that means more
income, that means more retail spending that means more
production. Then we get onto this virtuous cycle, and it's virtually
impossible to stop.

Jason Stipp: So speaking of that, Bob, is this sustainable? What's going to keep
it sustainable if it is?

Bob Johnson: Sure. We're up five out of the last six months. That's at a time
when unemployment has been relatively steady. It hasn't gotten
much better. We really haven't had very many new jobs,
whatsoever. We're basically flattened on the jobs front.

Now, I think we're getting to the part of the cycle where we are
going to add jobs and meaningful jobs, 100,000-, 200,000-,
300,000-a-month type of jobs. So, we could layer that on top of the
improvement that we already have. That's where the next leg is
going to come from.

Before, it's been the people that had their jobs spending more and
feeling more confident. Now, we're actually going to have more
people with more jobs, maybe a slightly higher wage, and maybe
more hours worked. All of those things will put more spending
money in the consumer's pocket.

So far, almost all of the additional spending has been because
they've cut back a little bit on their savings. Everybody panicked
and saved a lot more money when the recession hit. Now, some of
that is starting to come out, slowly but surely, and that's what's
moved us so far. Now, we need the real incomes and the real
employment.

Jason Stipp: Well, certainly something to be optimistic about in the future.
Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Jason Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching