Description

Although consumers are still putting off big purchases, small splurges are becoming more commonplace.

Transcript

Where the Consumer Is Spending (Morningstar) Jason Stipp: I’m Jason Stipp for Morningstar. We’ve got a couple of pieces of consumer data this week, some preview data ahead of next week’s government retail sales report. Here with me to pick a parts some of those reports and tell us what they mean for the economy is Morningstar’s Bob Johnson, he’s Associate Director of Economic Analysis. Thanks for joining me Bob. Bob Johnson: It's great to be here. Jason Stipp: So first question for you. We’ve got a couple of smaller reports ahead of the government retail sales report and you’ve dug into those this week and what were those reports and what did they tell you? Bob Johnson: Sure. A lot of individual stores report their data for the month -- of the previous month on this Thursday and it's a compilation of various stores. And there are two major reports that go through into this, the International Council Shopping Centers is one organization that does it and group called Radiometrics goes through in and analyzes it a similar set of store with some are different. Jason Stipp: So these reports are looking at same stores sales, so these are stores that have been open for more than a year, so they’re not adding in any new stores in it. Bob Johnson: Correct. Jason Stipp: Okay, and so, what were – where do the members come in those reports and how were they compared to what people were expecting. Bob Johnson: Sure. They were relatively consistent, the retail metrics numbers about 3.2% same store sales growth and the shopping center’s council number was about 3%. And the shopping centers had said, you know 3 or 4%, so as low end to that range and it was 3.5 was the expectation on the retail metrics number that came at 3.2. Jason Stipp: You’ve spent some time sort digging in there and seeing where the consumers were actually spending in these reports. What did you find about where you were seeing some growth and what still was lacking —? Bob Johnson: In these reports, there are few things that were visible and then I’ve got some government reports I want to talk about too that show where the spending in this recovery. In terms of these reports, it’s clearly luxury and to the market is doing better. Maybe it was the better stock market or whatever, but there has been consistent growth and you see the companies like Nordstrom in particular where we had a great comfortable store sales number this morning that the luxury end is come back faster than anything else. And the discounters are doing okay but they’ve got some harder camps and their gross price slowed up a little bit. In fact, department stores for a change actually grew better this month than discount stores. So I think that’s kind of interesting phenomena as well. Jason Stipp: Sure. What were you saying on the auto side because autos again, are another part of the consumers spending over all, and you see some interesting trends there? Bob Johnson: Yes that moving away from our weekly retail sale or the monthly retail sales camp store report, now looking back at government data, I like to focus on that. What's happening in this recovery and in terms of the consumer, with the consumer is now back to spending the same as it was before and a lot program are like, “Bob how can that be?” But it really is the case and but others have not improved. Now you ask me about autos and that’s one that’s contributed a little bit to this recovery. But in terms of the consumer’s side of the house, autos have only recovered about 10% of what we’ve lost in this big decline in auto sales. Jason Stipp: On the consumer side. Bob Johnson: On the consumer side. Now, we’ve got a bigger boom when you look at fleets, you know your Avis hurts and all those kind of folks. A sales to small business, we’ve talked about pickup sales to small businesses is improving and just general sales to corporations that are in the investment accounts, not in consumption accounts are all quite a bit better. But the consumer buying for its own personal use is barely off the bottom. Jason Stipp: So as the consumer is in feeling comfortable enough to go out and buy a car yet, maybe still feeling a little bit shaky about the economy and the job market. Where is the consumer spending money? Where have you seeing some good growth? Bob Johnson: Well you know it's really interesting. There’s one category that jumped out and I actually have looked up what was in it to figure out what it was, and it was called recreational goods and vehicles. And that was the number one leading category it accounted four about a third of the recovery, in between third and a half of the recovery and the consumer spending in this cycle. And that’s things like consumer electronics is in that category. Books are in that category, what else do we have—sporting goods is in that category. So kind of the small splurges in life are kind of in this category and it's done stunningly well, and it makes up like I said the lion share improvement, things like furniture are also doing better but usually that be the, you know leader coming out on recession. Auto is up a little contributed some, but again, just a little bit of what they normally do. Jason Stipp: So it is positive that a lot of these things could be considered discretion. They are smaller purchases but they are maybe things that a consumer wouldn’t have to buy but they’re feeling comfortable to start buying some of the smaller some of the smaller goods. So, I guess the next question for you then, based in some of the data that you’ve seen and you said this data was about in line with expectations. What are some of the implications for the economy and what are some the implications for the consumer based on what you’re seeing in these spending patterns? Bob Johnson: Sure. I think like you said there’s room for improvement in lot of category. We’ve got some initial balance off the bottom on a couple and we’ve got a lot of non-participators and maybe those are always starting to turn. My data only goes back to March in terms of the broad categories and so one of the things that were really weak is hotels and airline sales. Airline recovered 5 to 10% of what they’ve lost this recession. But now those numbers has started to get a better. We hear about airline looking is doing much better, hotels finally turning the corner. So there’s a category where we haven’t really seen much move or we still got a lot of room on the upside, so people are kind of moving up. You know before, like I’ll buy an iPod or maybe I’ll buy some small item and I’ll increase my food budget which are two things that are recovered very well and now kind of moving and starting to say, I'm going to spend on that vacation. And I think we’re starting to see it now, they’re still not buying the car or the house but we’re starting to see the progression. Jason Stipp: So that seemed to indicate then that maybe we’re not closed to the end of you know there was a huge boom that consumers are spending out, it’s all over like we’re starting to see some progress along that link. So I think the March numbers looked just so great for consumer spending and then April didn’t look as good, and I think that’s were a lot of people starts to really get concerned that of the consumers kind of a spur to spending it now. There’s worry without there in the economy again and spending is done but you’re data isn’t suggesting that. Bob Johnson: No, in fact it is, really pretty clear on it that March was some type out layer, I mean we’ve been turning about 3% growth in retail sales for sometime and March was just stunner. I mean it was 9%, I mean it was a perfect storm of great weather, pent up demand and cabin fever calendar based and the way that retailers count their sales in which month. We’re all combined where the holidays fell, all combined to make that a really stunningly good number, up to 9%, I mean – and that just kind of doesn’t happen. And now we’ve actually had three months of improvement, were May was better than April and June was better than May. And we now had a 10 consecutive months of retail sales, same stores sales being up which I think – you know a great trend and people come and get lost and say well, but gee it’s not as great as March, we’re going back into the abyss. And I look at the data and say no, March was incredibly good and we claps after and now we kind of had a nice improvement again. Jason Stipp: So you really have to say it's a squiggly line but the trend is in the right direction. Bob Johnson: That’s right and looking ahead at July I think we’re going to have another 3 to 4% growth month in consumer spending the kind of extending their trend. Jason Stipp: Sure. Well, Bob thanks for your insights on the consumer. Bob Johnson: Thank you. Jason Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.