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By Jeremy Glaser | 03-14-2012 01:00 PM

Retail Sales Flex Their Muscles in February

Strong retail numbers, combined with last week's employment data, continue to indicate more growth in the coming months, according to Morningstar's Bob Johnson.

Jeremy Glaser: For, I am Jeremy Glaser. This week we got the best retail sales report in five months. I'm here today with director of economic analysis Bob Johnson to take a closer look at the numbers and see if there are any downsides.

Bob, thanks for joining me today.

Bob Johnson: Great to be here.

Glaser: So let's take a look at the raw numbers first. What did retail sales look like in February, and is this about what you expected?

Johnson: Well, we grew 1.1%, the headline number for the month, which was pretty much in line with expectations. Keep in mind, it's a high number because it's month-to-month; that's the growth from January to February. To get to kind of a full-year number, you have to multiply it by 12. So we were up more than 13% if you annualize one month, which really isn't the fairest thing in the world to do. When you go back and look even on a year-over-year basis, you're up more than 6% on a year-over-year basis in terms of these numbers. This is a very healthy number and shows that retail and consumers are still alive and well.

Glaser: That's certainly a big boost, but how much of that increase was just higher gas prices, inflation, and other types of higher prices building up that number versus people actually wanting to spend more?

Johnson: I think there are a few ways to look at it. Let's address gasoline front and center. It was the fastest-growing part of the number. It wasn't because people bought more gasoline, it was because gasoline cost more. This report is not adjusted for inflation or price changes. So gasoline grew 3.2%, and it is a meaningful contributor to the index. That certainly was a help. The other really big help--one might call unnatural--was autos, which had a really big jump of more than 1%. That really helped out the overall number. That's partially because I think somehow the January numbers for cars didn’t get fully accounted for in last month's report, and it showed up in this month's report. We saw the auto numbers from the auto dealers, and those were clearly good in both months. So I think there was a little catch-up on the auto sector.

If you strip out the autos and the gasoline effect, we were still up 0.6% sequentially or about 7.2% annualized. Or if you look on the year-over-year basis, which is a good way to look at it, we were still up 5.8%. Both are very healthy numbers.

Glaser: Gas and auto sales look strong, but what other sectors performed well in the month?

Johnson: Well, the bigger question is almost what didn’t do well because only one category was actually down. It was kind of good across-the-board. But there was a lot of strength. We've already mentioned autos and gasoline, and apparel was one of the stronger categories. I can't quite figure out for sure why apparel did well. I'm going to guess maybe it was a little bit of discounting to clear out winter goods, and maybe some warm weather encouraged a few spring sales a little early. But the number looked a little unusually strong on apparel. Building materials also was good, up 1.4% month to month, but that might be because people are starting their gardening a little earlier and maybe doing a little bit of home fix-ups, too. That said, it was still another particularly strong category.

Glaser: Along the same lines of building materials, what about the construction industry? We've been focused on that with the housing market, so how did construction do?

Johnson: Well, at 1.4% it was one of the better growers this month. It was good to see, but there is a little question if that's all weather-related or not.

Glaser: Yes, exactly. We've had this unseasonably warm weather for a while across most of the country. Are people just pushing forward that consumption versus an actual newfound excitement for home improvement?

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