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By Robert Johnson, CFA and Jeremy Glaser | 07-16-2014 12:00 PM

Economic Data Moving in the Right Direction

Despite some weak headline numbers, this week's economic data show ongoing year-over-year improvement, but they still don't change Morningstar's Bob Johnson's GDP outlook.

Jeremy Glaser: From Morningstar, I'm Jeremy Glaser. Some data released this week appeared to have headline numbers that were disappointing, but Bob Johnson, our director of economic analysis, thinks you need to take a closer look to see that the data is actually pretty good.

Bob, thanks for joining me.

Bob Johnson: Great to be here today.

Glaser: Let's start with that retail sales report. [Retail sales for June were up] only 0.2%, below that 0.6% increase that many had expected. Why was this below expectations, and why do you think these numbers weren’t really all that bad?

Johnson: There were a couple of key categories that were weak, but the underlying strength was really there if you looked at the individual categories. Building materials, which is always up and down, especially this time of year--it depends on garden-centers sales where if you sell more plants it seems to make a difference in the numbers--and a little bit of slowness in the homebuilding market, as well, those are probably things weighing on the [building materials] number a little bit. But that was really the biggest detractor in the [retail sales] number, which was down over 1% month to month.

The other big surprise is that the car sales in this particular report--which isn't used to calculate GDP by the way--indicated that car sales were down in June. We actually know that units were up in June. It's usually a mix issue between business and consumer cars and a little bit on price that usually move that number around. But again, that was the other big detractor from the number.

And food sales were off a little bit too, and that may be because of the high prices that we are seeing out there, that people are being a little bit more cautious and spending day to day on their food hoping that the prices come down rather than doing a big stock-up orders and having a bunch of food sitting around, especially with the prices being so high.

So those were the key things that held the report back.

Glaser: If you backed out some of those categories then, what did the number look like?

Johnson: If you took out building materials, autos, and gasoline, we were up 0.5% month to month. But as you know, my favorite way to look at the numbers is year over year on a moving-average basis, and there the picture is a lot clearer and a lot more positive.

Back in February when we were probably at the worst of the weather-condition things, retail sales were up year over year on an average basis of a measly 2.1%. Now we've dramatically improved those numbers, and now we are at kind of 3.9%. In each of the last four months, that number has gone up. It's not like it was one spiky month that made the numbers look good. It was a long-term series of numbers that retail sales are indeed improving.

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