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.
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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.