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By Jason Stipp | 06-29-2011 01:06 PM

Consumers Haven't Given Up the Ghost

The consumer is hanging in better than broad consumption data indicates, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar.

Another day, another economic indicator: Some up, some down. But where should we look to get a sense of the real underlying health of the economy.

Morningstar's Bob Johnson has some clues for us, and he is joining me today.

Thanks for being here, Bob.

Bob Johnson: Thanks for having me.

Stipp: So, we are getting a lot of different indicators; the market sometimes responding to them, one way or the other. It feels a little seasick sometimes out there in the market.

But I want to get a sense of what you're specifically looking at. So, obviously you look at all of them, but you're honing in on certain economic indicators right now.

Can you give me a sense of what those things are?

Johnson: Sure. I watch a lot of what the consumer is doing, and there I've got to be very careful when I look at the consumer numbers. But I'm primarily watching the consumer, his incomes, his employment. Those are the things that are going to drive the economy going forward. Then there are things that I'm not looking at.

Stipp: So, before we get to those, let's talk a little bit about the consumer, because there's been a lot of events, some anomalies really, that have toyed with and messed with the consumer data that you have to look past or at least account for. And I think one of the big ones is auto. We've seen a lot of anomalies with auto sales. Can you talk about how you're adjusting for that in your estimates and what you're looking at in consumer?

Johnson: The biggest way I do that is I look at the International Council of Shopping Centers numbers, both weekly and monthly. Those numbers are what you buy at the store, and they exclude autos and they exclude restaurant sales. So, they are kind of pure "what are you actually buying in the store" type of numbers. And those numbers have been very consistent. We've been stuck in a rut--whether good or bad, at kind of 2.5% to 3.5% year-over-year growth, for almost a year now. Those numbers have remained remarkably stable, and so I'm very, very positive on those.

Stipp: I know typically you can look at auto sales as a gauge for how good the consumer is feeling, because that's a bigger ticket purchase. But we've seen some strange things happening with the auto sales and the auto prices. Can you talk about what's going on there?

Johnson: Sure. We went several months where we were running in an annual rate of well over 13 million units. Then we dipped back under 12 in the latest month, because of supply issues from Japan and also even some parts in the U.S. manufacturers, so there really wasn't a lot of supply, and on top of it, we had a lot of price increases and lack of incentives, so consumers voted with their feet, and they didn't buy new cars.

Stipp: But when you're looking at the shopping center data that would indicate that consumers aren't turning away from spending altogether. They're just turning away right now from autos, because shortage of supply and higher prices.

Johnson: That's right, and so we saw consumption numbers were down 0.1% in the most recent month, but almost all of that decline in spending was due to autos. So, you've got to be careful which consumer numbers you look at.

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