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By Jeremy Glaser and Robert Johnson, CFA | 08-13-2014 12:00 PM

July Retail Numbers Don't Tell the Whole Story

Month-to-month sales looked disappointing, but year-over-year data show consumers are doing at least as well as they had been, says Morningstar's Bob Johnson.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. Retail sales were flat in July from June levels. Is this a sign that the consumer is in trouble? I'm here today with Bob Johnson--he's our director of economic analysis--to take a closer look at the report. Bob, thanks for joining me.

Bob Johnson: Great to be here today.

Glaser: Let's start with that top-line number. What did the July report show us?

Johnson: It was disappointing overall. It showed, as you said, no growth overall. Even if you strip out autos, which were down just a touch, we were only up 0.1%. Even my preferred method of excluding autos and gasoline showed on a month-to-month basis only a 0.1% improvement.

Glaser: That sounds not so great, but is this really the right way to look at that data from a month-to-month basis?

Johnson: No, I always think you need to look at the data year over year and averaged. There was about 4% year-over-year growth in retail sales, which is kind of where we've been--except for a brief period where we dipped in January and February where there were some weather effects. But that 4% is pretty close to what it's been for the last several years, and I really don't think there's any deterioration that's showing up in these numbers when you look at them the right way.

Glaser: That being said, the numbers have been decelerating over the past couple of months. What could be driving that? Is this a sign that there could be some weakness to come?

Johnson: I think you need to be really careful when you look at the numbers because retail sales is one of those tricky reports. It's so important because it is 30% of consumption, which is 70% of the GDP calculation. But this report is revised a lot, especially one month later. So, you really need to be careful looking at this data, because you could give it a good quick read, but it certainly gets revised often--even in terms of direction--the following month.

Certainly, there are seasonal-adjustment factors in there that mess it up as well. And certainly, July is a tough month; it's one of the lowest retail-sales months of the year for conventional goods. And so, that kind of messes up the number too when you've got these different, shifting seasonal factors. So, you need to be very, very careful when you look at these numbers, especially month to month. I think the year-over-year pattern makes a lot more sense.

In [regard to the month-to-month number], what happened is that we had a really strong spring. We had a bad winter, and then we had this huge spike. Of course, after that spike, things kind of slowed up a little bit. Then, you had a second factor in the headline number where gasoline prices and automobile prices have actually been coming down. One of the problems with this report is that it's not adjusted for inflation. So, if you include the gasoline and the cars in there, of course the pattern is going to look like it's down.

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