Don't Be Disappointed About December Retail Numbers

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. December's retail-sales report was a disappointment. I'm with Bob Johnson--he is our director of economic analysis--to give us the sense of scale and also what his outlook is for retail sales.

Bob, thanks for joining me.

Bob Johnson: Great to be here today.

Glaser: So, why did the market not care for this December sales report? Does it show that we didn't have a very good holiday season?

Johnson: Yes. On a headline basis, it was pretty terrible. And when I say headline basis, people report the data month to month. They are comparing November to December and looking at that single point number. On that basis, on the headline basis, retail sales were down 0.9%. People thought it was going to be a down number, somewhere in the minus 0.1% to the minus 0.4% level, because of falling gasoline prices--and this report does not adjust for lower prices. So, if the price of gasoline is lower, your gasoline sales will go down in this report. So, it's kind of an added complication. But the 0.9% was worse than anybody was looking for. Even when you throw out gasoline and autos, month to month, we were still down 0.4%. So, that's not necessarily a wonderful state of affairs.

Glaser: But as you always warn us, month-to-month data can be misleading or very volatile. When you look at it over a longer term, what does the trend look like?

Johnson: Let's break that down two ways. On a year-over-year basis, we were at 4.6% retail-sales growth, which is the best number that we've seen this year. So, we're still in very good shape on a year-over-year basis and averaging it over three months. In fact, we've been, since August, stuck between 4.4% and 4.6%, which is a very narrow range. So, it's clearly not the deterioration that everybody is really worried about. And if you look at the inflation-adjusted data, the news is even better. Since February, each month we've gotten better and better on inflation-adjusted retail sales--from as low as 0.8% in February to now this month we were up to 3.4%, which by the way was only 3.1% in the prior month. So, we're still accelerating on that [front]. So, before you say that oil hasn't had any impact on the data, I think you need to look at it a little bit [more broadly] than many people are.

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Glaser: How about sectors? Where are consumers spending money?

Johnson: Not so much where they were spending, but I think what you're seeing is a phenomenon where furniture is doing better, people are spending on their homes, restaurant sales were great. They have been great for several months now--and almost kind of unexpectedly. That's a really great indicator of consumer confidence. They were up 0.8% month to month and also one of the best performers year over year as well. So, restaurant sales, which are a great indicator of consumer confidence, did very well. And that just [seems] to say that maybe the seasonal factors were wrong, maybe there were more sales in November this year and fewer in December, maybe people shopped earlier. Maybe something kind of messed up the numbers because you just don't have this kind of consistent, great growth in restaurant sales if consumers are upset or lacking money.

Glaser: And what didn't look as strong?

Johnson: Well, clearly, gasoline took a big hit out of the headline number. But if you strip that out, probably the biggest number was the building-materials sectors. And remember that we had quite a warm December, so some of the outdoor, snow-shoveling, salt type of stuff is going to show up probably in January instead of December. And recall that November was also actually quite cold, so some things might've gotten pulled there. So, December was left as kind of a slow month, and that's a relatively important category. It was down 1.9%, month to month. So, that also impacted the number.

But that said, the month-to-month numbers didn't look particularly good, and I think probably there was some shifting around. November probably wasn't as good as it looked on a month-to-month basis, and December wasn't quite as bad as it was. And I certainly wouldn't be reading into this [report] what so many people are, which is "Oh, the retail sales were down in December; oh, the hourly wage was down; oh, now the World Bank has reduced the world growth rate; oh, we're going into another recession." It seems like we were only sitting here last week talking about everybody wanting to raise their GDP estimates for next year to 3% or 4%. This is just kind of an indication that probably that's not going to happen even with lower gasoline prices.

Glaser: So, your outlook, then, is for more of the same?

Johnson: Well, in terms of retail sales, I think we'll continue to do quite well. I don't think we're going to see a strong acceleration in retail sales either. They are at a pretty healthy number. They are typically what you'd see midcycle in a recovery, and I think we're kind of there. I wouldn't expect a dramatic improvement from here. I think, too, we're seeing this whole shifting thing; people are spending a little bit more on their housing. People are saying, "I want to live inside the city. I don't care if my rents are up 5% every year. That's where I want to live. That's where I am going to spend my money instead of spending it on a new bag or a new pair of shoes."

Glaser: Bob, as always, I appreciate your take.

Johnson: Thank you.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.