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By Jason Stipp and Robert Johnson, CFA | 11-14-2013 12:00 AM

Something Is Holding Consumers Back

Despite the market hitting new highs and moderate inflation, consumer spending has remained soft, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. With lower gas prices, Wall Street hitting new highs, and consumer incomes and employment looking a little better, why are retailers so glum about the holiday shopping season?

Here to talk about some of the underlying drivers in the U.S. economy right now is Bob Johnson, our director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: You've been watching the data for a little while, and you've raised a few yellow flags, especially about the consumer data. What has the trend been in the consumer data?

Johnson: It's been soft, and the most recent data point we've got is the consumption report, which is the most comprehensive. It includes cars, … housing; it rolls it all up into one package. In the most recent month that we have, which is September, we were only up on an inflation-adjusted basis 0.1% in terms of consumption.

And the retail sales reports have been nothing to write home about recently, either. My weekly shopping center data has showed 2% year-over-year growth, and is not really accelerating at all.

Stipp: Reading your weekly reports, you're not panicking yet, and in fact, there is somewhat of a puzzle going on right now, because some other things you look at would suggest that there are positive drivers that should be pushing consumer spending up a little bit. What are some of those?

Johnson: That's right. The numbers right now, the as-is concurrent numbers, are not looking good. But I'm a little puzzled why they aren't acting a little better. Gasoline prices are now at a two-and-a-half-year low, and they've obviously been volatile--maybe people don't spend that money [from short-term gas price declines]--but certainly we are at a very favorable part of the curve for gasoline inflation. And food inflation and generalized inflation is also very low. That certainly puts more money in consumers' pockets. There are a few other things that are probably weighing on the retail sales report, though.

Stipp: Let's talk about some of those background issues that may be keeping spending from being as high as it could be. One that you say might be causing some issues with the pocketbook is Obamacare, and some of the confusion and some of the issues that have come with the launch of that.

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