No Sugar Coating Last Week's US News ...

... but there's still no need to panic, says Morningstar's Bob Johnson.

Robert Johnson, CFA 23.05.2011
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Housing starts remained soft, three separate manufacturing reports--heretofore the strongest sector of the economy--showed meaningful slowing, and existing home sales dipped again (on weather and Japanese supply-chain issues).

Worse, retailers, including Gap (GPS), indicated that higher input prices were beginning to pinch profits more than most analysts had anticipated. Unfortunately, the tale of two recoveries continued; Wal-Mart (WMT) reported same-store declines for its eighth quarter in row as midtier customers moved up and low-end customers moved to even cheaper dollar stores. Meanwhile, Saks (SKS), a luxury goods retailer, affirmed that it was trying to raise its price points. Cold weather in the upper Midwest pinched home goods retailers Lowe's (LOW) and Home Depot (HD) and sporting goods purveyor Dick's (DKS), with weather-sensitive categories off more than 20% from a year ago (think bushes, shrubs, and kayaks).

International News Wasn't So Hot, Either
The European debt crisis remains far from solved as southern European nations push back on austerity measures and northern European nations take to the papers announcing that debts will not be rescheduled or written down. Greek debt was downgraded once again. Greece isn't big enough to do much damage to anybody (well, maybe a few European banks), but the situation highlights that there is no easy way to fix debt problems under the euro. The easy fix of devaluing the currency just isn't there. And debt defaults aren't all that practical because they would wreak havoc on already fragile European banks. Luckily for the United States, its big export binge has been to Asia and the Americas.

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Robert Johnson, CFA  Robert Johnson, CFA, is director of economic analysis with Morningstar.

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