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By Jason Stipp and Robert Johnson, CFA | 10-17-2012 11:00 AM

Consumers Show Some Fortitude

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

Jason Stipp: I'm Jason Stipp for Morningstar.

We got strong retail sales and housing starts data this week, suggesting some fortitude in the all-important consumer sector. Can we believe the numbers?

Checking in today is Bob Johnson, our director of economic analysis, to give some insights on these two very important reports.

Bob, thanks for joining me.

Bob Johnson: Great to be here.

Stipp: Let's start with the retail sales report. It was good month-over-month number. What did those data suggest to you?

Johnson: We grew retail sales 1.1% from August until September, which was a very good number. We'd all thought it might be a good number, but at 1.1%, it was a great number.

Stipp: How does that fit into the short-term trend? What have we seen retail sales doing recently?

Johnson: Well, recall that we had a very weak, at least according to the numbers, second-quarter period. We actually had some negative retail sales numbers there for a while. And then starting in July, we've had three consecutive months of improvement, with this month being the best month of all.

Stipp: And you also look at the data year-over-year to help clear away some of that short-term noise. How are we doing year-over-year on retail sales?

Johnson: Well, that's where things get interesting. We are up about 4.3% year-over-year on my three-month moving average basis, excluding gasoline and excluding automobiles, which are highly volatile items.

Stipp: So, I know that there are some things you will strip away that can affect this retail sales number--sometimes we'll have a good topline number, but one thing did really well and one thing did really poorly.

When you look underneath the report, are there any special factors that you need to consider as you are gauging whether this was a really strong report or just a "kind of strong over here, and kind of weak over here" report?

Johnson: Well, there were a lot of special factors that we can talk about individually, but the key thing that I look at is how across-the-board were the changes? In other words, were there two or three items or categories that did well and everything else did poorly? This time every category, except department stores, was up and most of the items were up on a fairly large amount as well. So, it wasn't like any one thing totally drove it.

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