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By Jeremy Glaser | 09-07-2011 03:26 PM

Consumers Still Bargain Hunting

Despite gloomy economic news, shoppers are still looking for good deals and spending money, says Morningstar's Bob Johnson.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm here today with Bob Johnson, Morningstar's director of economic analysis. We're going to take a closer look at the consumer and see how shoppers are faring.

Bob thanks so much for joining me today.

Bob Johnson: Thank you for having me.

Glaser: So you've mentioned a few times that the consumer is really key to the recovery. We have gotten a number of data points during the last two weeks kind of pointing to maybe an improvement in consumer spending and an improvement in the consumer sentiment. Can you talk to us little bit about that, maybe starting with ISM Services Index from this week?

Johnson: Sure, this week he got the ISM services number, and it was about 53. Remember 50 is kind of what people say is a demarcation between growth and shrinkage. So, people thought that number might get worse especially in light of the budget debacle and the things that happened particularly in early August as well as the European situation. But instead the number showed improvement, and the services sector is extremely important. It's much larger than the manufacturing goods and construction part of the economy; 2 to 3 times as big. So it was good to see that number tick up, and I think the market reacted well on Tuesday to that ISM number.

Glaser: So, with services expanding, what about consumer spending?

Johnson: Well, there was a big national report last week, which we didn't have time to talk about, but consumer spending in one single month grew 8/10 of 1%. And even after you subtract out inflation, it was up 5/10 of a percent. So if you annualize it, that's 6%, which a really high number for consumers. Usually we're pretty satisfied to have a number more like 3%. So we're very pleased with the number, some of that is because auto sales came back and the weather was particularly favorable (and we talk about months when it is unfavorable). So we have to be a little careful about extrapolating from that one number, but certainly consumers haven't run for the hills.

Glaser: But even so, it was a pretty solid showing from the consumer. You also look at some weekly data does that kind of corroborate that consumers are really out there spending?

Johnson: Yes, we have kind of had numbers out there, and we have been tracking between 3% and 4% for probably a year and a half. Maybe we have an occasional month where we creep up close to 5%, but we're still in that 3% range. Now this week we were just a little under 3% for the one week but that is related to Hurricane Irene and the East Coast; we were basically shut down on the East Coast for a couple of the weekend days. So that hurt the numbers just a little bit. But we are still in the range of 2.5%-3.5% that's going to keep us going. So I was really pleased to see that we held up, and now maybe next week we will get a little bit better of a number if things begin to stabilize from the storms.

Glaser: So certainly there is maybe a little bit of a conundrum here that we have had. There's a lot of uncertainty and a lot of bad news coming out, but consumers still seem to have enough confidence to go out there and actually spend. Can you talk to us a little bit about the psyche of the consumer right now? Do you think people are just feeling really comfortable so they are out there spending, or are they kind of changing their spending habits in a really meaningful way that could last for a long time? What is your take on the consumer?

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