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By Jason Stipp and Robert Johnson, CFA | 10-16-2013 12:00 PM

Out of the Fire, Into the Frying Pan

Investors may not have much to cheer when the smoke clears following a debt crisis resolution, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. As Congress approached a deal to resolve the debt ceiling on Wednesday, there was instantaneous optimism in the market. But when the smoke clears after this issue is finally resolved, will we see a good or a troubled economy?

Here to offer his take on the fundamentals is Morningstar's Bob Johnson, our director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: We have a couple of issues to deal with, with Washington and the economy. First of all, there is possible damage that the wrangling may have done to the economy. But secondly, it's just the fundamental health of the economy absent what's going on in Washington.

So let's first talk about just the fundamentals that you do know about at this point--we haven't seen some data for a little while now. What do they tell you about the fundamental strength of the economy improving or not improving? There seem to be some pros and cons. When you look at what's not particularly hopeful in the data that you have seen, what are those things?

Johnson: The number one thing that I'd probably cite that's a little soft right now is my weekly shopping center data. That is one piece of data we did get this week, and that number fell to under 1% [growth]. Obviously, the government situation is having an effect on consumer spending. That's probably one of the very few times in this recovery we've had a single month's number under 1%.

Even the five-week moving average is below 2% now, which is a flash danger point to me, because without consumers shopping, they don't buy things, and they don't order things at stores, they don't manufacture things in plants, and the plants don't hire people, and you get that vicious downward spiral.

Some of the numbers on that look weak, and unfortunately, that whole index is hobbled just a little bit by the fact that it's retail stores, and obviously as Amazon pulls a little bit of the share away, we can't tell how much of it is because they're losing share to Amazon and how much of it is because of fundamental reasons. But the shopping environment is clearly not strong, in my opinion, and that's a bad sign for the economy.

Stipp: So even before the crisis started to occur in Washington, the retail sales figures that you were looking at were at the lower range of what you'd like to see. So it's not like they were strong and suddenly took a dip here in October.

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