Home>Video>Morningstar Minute: How to Interpret Retail Sales

Morningstar Minute: How to Interpret Retail Sales

Tue, 4 Mar 2014

The retail sales report can be an early-warning sign for recessions, but we are still waiting to see if the current slowdown is related to weather or a true dip in demand, says Morningstar's Bob Johnson.


Video Transcript

The Morningstar Minute is our quick take on investments, the market, economic indicators, and more. Join us every day for fresh insights from our analyst team.

Bob Johnson: We're looking at the government's report on retail sales, what consumers spend in stores. It's a very important number for the economy because consumption is 70% of gross domestic product. The goods represent about one third of that, and we get that off of the retail sales report. It's a great report because it comes early in the month. It's a great report because it's a great leading indicator of upcoming recessions. It's very good from that point of view.

Some of the pitfalls of looking at this report is it's not adjusted for inflation. It includes autos, which are very volatile. It includes gasoline at current prices so it reflects not demand for gasoline, but how the price of gasoline has changed. It's not really telling you anything about underlying demand. Those are the biggest pitfalls of this report. 

This particular graph that you see today tries to incorporate some of those pitfalls. We have taken the retail sales data, we've excluded autos and gasoline, and we have adjusted it for inflation. And the general trend that you can see here is that in recoveries, we grow about 2% to 4% on a year-over-year average basis. And right now we're running just a little bit below that. We're running at 1.5%, and it has deteriorated recently.

It's a little bit hard to tell, whether that 1.5% reading of today is more due to weather or slowing in the consumer. Time will tell.

  1. Related Videos
  2. Related Articles
  1. Brace for Another Poor Jobs Report

    The raw data suggest that February job gains should be worse, not better, than the consensus of 143,000, says Morningstar's Bob Johnson .

  2. 4Q GDP May Take a Dive

    The government's second read on fourth-quarter GDP, due Friday, will probably dip from the initial 3.2% reported growth rate--but don't hit the panic button, says Morningstar's Bob Johnson .

  3. Job Growth Should Look Up From Here

    February's better-than-expected job gains were still below the 2013 monthly average, but we should see acceleration--albeit uneven--in subsequent months, says Morningstar's Bob Johnson .

  4. Expect a Further Slowdown in China

    Recent data suggest more worrisome conditions for the Chinese economy, and investors shouldn't count on the country for near-term growth, says Morningstar's Bob Johnson .

  5. Johnson: China Woes Not Threatening U.S. Fundamentals--Yet

    China may be the proximate cause of the recent stock market carnage, but Morningstar's Bob Johnson doesn't see signs yet that the country's slowdown is having an impact on the fundamentals of the U.S. economy.

  6. Quantity Over Quality in the Job Market?

    You're not getting the full picture if all you consider is the number of jobs added, says Morningstar's Bob Johnson .

  7. Not Much for Bulls or Bears in Retail Sales

    The report for December indicates that the economy is neither falling apart nor accelerating in any meaningful way, says Morningstar's Bob Johnson .

  8. Consumers Show Some Fortitude

    Even excluding special factors, recent retail sales data suggest we have seen sharp improvement, says Morningstar's Bob Johnson .

©2017 Morningstar Advisor. All right reserved.