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Increase for Retail During May

June 14, 2009

Retail sales were still 9.6 percent below their levels from last year, and economists said that consumer spending, while stabilizing, was not likely to come roaring back this year. Consumers were saving more of their income and spending less as they worried about the prospect of rising unemployment and wage cuts.

Also on Thursday, the Labor Department reported that first-time jobless claims fell more than expected last week in a continuation of some marginally better indications from the job market. Claims for unemployment insurance fell 24,000, to a seasonally adjusted 601,000.

Last week, the government reported that 345,000 jobs vanished in May, a stark figure but a much slower pace of job losses than months earlier, when as many as 741,000 jobs were lost in a single month. Economists still expect businesses to continue cutting jobs for much of this year, but at a declining pace.

“The underlying tone of consumer spending remains weak, and while the steep declines in consumer spending seen over the second half of 2008 have been arrested, sales have at best stabilized at a low level,” Richard Moody, chief economist at Forward Capital, wrote in a research note.

As income growth dwindles and the recession lingers, consumers are cutting nonessential spending from their budgets, as evidenced by continued declines in luxury purchases and sliding sales at high-end retailers, economists say.

“It’s still in search of the bottom,” Michael P. Niemira, chief economist of the International Council of Shopping Centers, said of the retail market.

A gauge of how businesses are adapting to the recession and lower levels of consumer demand showed that companies continue to slash their inventories. The government reported Thursday that business inventories fell 1.1 percent in April from a month earlier, their eighth consecutive month of decline.

For further information, visit: http://www.nytimes.com/2009/06/12/business/economy/12econ.html

Economic Recovery Not Yet Arriving

June 12, 2009

With a rise in the number of people continuing to receive jobless aid and companies holding off on hiring, analysts warn an economic recovery is still far off.

The Labor Department said Thursday that initial claims for unemployment benefits fell last week by 24,000 to a seasonally adjusted 601,000. That’s below analysts’ estimates of 615,000, reported the Associated Press.

However, the number of people claiming benefits for more than a week rose by 59,000 to more than 6.8 million, the highest on records dating to 1967. The Labor Department also revised last week’s data on continuing claims, replacing what had been a drop of 15,000 with an increase of 6,000.

The Commerce Department said Thursday total retail sales rose 0.5 percent in May, the first advance in three months, lifted by strong gasoline and building material receipts. Consumers also spent more on food and clothing. Sales fell 0.2 percent in April.

The sales report fed optimism that consumer spending would probably be flat to modestly lower in the second quarter, instead of falling sharply as expected by most analysts.

Spending, which accounts for about 70 percent of U.S. economic activity, rose 1.5 percent in the January-March period, after a 4.3 percent dive in the fourth quarter.

Because rising gasoline prices aided last month’s retail sales gain, consumer purchasing could slow in other areas.

Meantime, the number of U.S. households on the verge of losing their homes dipped in May from April, and the annual increase was the smallest in three years, the AP also reported.

Foreclosure filings fell 6 percent in May from April, according to RealtyTrac Inc. More than 321,000 households received at least one foreclosure-related notice last month–18 percent more than a year earlier–but the smallest annual gain since June 2006.

As layoffs, rather than risky mortgages, become the main reason that borrowers default on their home loans, many economists expect foreclosures likely will remain elevated this year and into 2010.

Banks repossessed about 65,000 homes in May, up from 64,000 in April, due to big increases in several states including Michigan, Arizona and Nevada.

The Obama administration announced a plan in March to provide $50 billion from the financial industry rescue fund as an incentive for the mortgage industry to modify loans at lower monthly payments.

On Wall Street, investors welcomed the better-than-expected report on jobless claims and growth in retail sales, pushing stocks higher Thursday morning. Rising interest rates have recently become a concern and had sent stocks lower on Wednesday.

For further information, visit: http://www.pbs.org/newshour/updates/business/jan-june09/economy_06-11.html

Slowing Down The Economy’s Recovery

June 11, 2009

The number of people receiving unemployment benefits has set another record, a development likely to weigh on consumer spending and slow the economy’s recovery.

While retail sales rose in May, the increase resulted largely from a spike in gasoline prices and higher auto sales, according to a report from the Commerce Department. Overall, the retail report Thursday showed consumers remain reluctant to spend, economists said.

“The jobs picture continues to be one of the most significant challenges to the economy,” said Dean Curnutt, president of Macro Risk Advisors, a financial strategy firm. “It’s very difficult to be bullish on consumer spending when you’re looking at unemployment rates that are so high.”

The number of people continuing to claim benefits exceeded 6.8 million in the week ending May 30, the Labor Department said Thursday. That was the 19th straight weekly record, after a drop last week was revised to an increase.

And that doesn’t include about 2.4 million people receiving benefits through federal and state extended programs, which can add up to 53 weeks to the 26 weeks provided by most states. That means about 8.5 million people received unemployment insurance in the week ending May 23, the latest data available, triple the total of a year ago.

The unemployment rate jumped to 9.4 percent in May, a 25-year high, as employers cut 345,000 jobs. Some economists project the rate could near 11 percent by the middle of next year.

More encouraging was a drop in initial jobless claims to a seasonally-adjusted 601,000 last week, which was below analysts’ expectations and the lowest level since January.

New jobless claims are a measure of the pace of layoffs and are seen as a timely, if volatile, indicator of the economy’s health. The huge increase in the unemployment benefit rolls is a sign that even as layoffs slow, companies remain reluctant to hire.

The weak job market, along with dwindling home values and falling stock portfolios, likely will restrain consumer spending for months, economists said.

That’s a big reason why many analysts and the Federal Reserve expect any economic recovery later this year to be slow.

Consumer spending powers about 70 percent of the economy and has been key to past recoveries. When Americans sharply reversed their free-spending ways last year, the economy plunged into a steep recession, which is now the longest since World War II.

The Fed said Thursday that American households lost $1.33 trillion, or 2.6 percent, of their wealth in the first three months of the year. That caused household net worth to drop to the lowest level since the third quarter of 2004.

Tim Groves, a 39-year-old attorney in Providence, R.I., said his family’s spending has increased slightly from a few months ago but only because his wife did not lose some classes she teaches as they had feared.

“We’ve loosened up but that doesn’t necessarily mean we’re spending more,” Groves said. “We were cutting back a fair amount just preparing for that. We’re trying to keep the belt tight.”

Retail sales did rise 0.5 percent in May, the government said, the first increase in three months. But excluding autos, gas and other volatile categories, so-called “core” retail sales were flat compared with April.

Higher gas prices likely will restrain consumer spending in the next few months, said Paul Dales, U.S. economist at Capital Economics in Toronto. He estimates gas prices rose 10 percent in May and have jumped another 15 percent so far this month.

Still, Wall Street welcomed the drop in new jobless claims and growth in retail sales. The Dow Jones industrial average added nearly 32 points to 8,770.92, and broader indices also rose.

Many analysts expect layoffs to worsen the housing slump, as unemployment, rather than risky mortgages, becomes the main reason borrowers default on their loans. That will likely keep foreclosures elevated into 2010.

Foreclosure filings fell 6 percent in May from April, RealtyTrac Inc. said Thursday. More than 321,000 households received at least one foreclosure-related notice last month, 18 percent more than a year earlier.

Despite the drop from April, it was the third-highest monthly rate since the Irvine, Calif.-based foreclosure listing firm began its report in January 2005.

Also Thursday, the Commerce Department said businesses cut inventories 1.1 percent in April as they struggle to get stockpiles more in line with falling sales. Inventories have fallen for eight straight months, the longest stretch since there were 15 consecutive declines in 2001-2002, a period that covered the last recession. For further information, visit: http://www.google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD98OMFS81

Predicting What The Future Holds For Retail

June 10, 2009

While some kids are still counting the days until the end of this school year, retail experts are looking ahead to the back-to-school shopping ritual as the first real test of whether the economy is recovering.

“In a recession, the consumer is generally the last one to leave the economy and the first one back,” said Marshal Cohen, chief retail analyst with research firm NPD Group.

“Consumers didn’t really start to pull back until last October,” he said. “Now they’ve gone through months of frugality and there’s so much pent-up demand out there.”

According to the National Retail Federation, back-to school shopping is typically merchants’ second-biggest selling period after the holiday gift-buying months of November and December.

If back-to-school sales are a disaster, then Cohen warns that the economy is headed for a “long period of continued challenge.”

But if he’s guessed correctly, and this tidal wave of pent-up demand hits retail stores from mid-summer through September, “it could be the first credible sign that consumers are feeling a little bit OK about spending again,” he said.

That’s significant because consumer spending fuels two-thirds of the economy. And the economy could use the help: the nation’s gross domestic product declined at a 5.7% annual rate in the first quarter of this year, the third straight quarter of decline.

“Parents cannot not spend on their kids,” Cohen said. “They will loosen up their purses and wallets because they won’t send their kids to school with a 2-year-old backpack.”

Still, he said budget-conscious Americans will show a preference for buying “necessities.”

Retailers should also benefit from last year’s easier comparisons for the season. “Back-to-school sales were very late last year. So most merchants are up against much softer year-over-year numbers,” Cohen said.

Catalyst for holiday sales: Cohen and others pointed to a historical correlation between back-to-school sales trends and retailers’ performance over the year-end holidays, which usually account for as much as 50% of stores’ profits and sales for the entire year.

“For me, back-to-school is always the early indicator of the holiday season,” Cohen said.

Ken Perkins, president of sales tracking firm Retail Metrics, agreed. “If back-to-school [sales] are decent, it could become a catalyst for holiday sales,” he said.

“Traditionally back-to-school tends to post stronger same-store sales than the holiday season,” said Jharonne Martis, senior research analyst with Thomson Reuters, which tracks monthly same-store sales for 30 large national chains including Target, Macy’s, J.C. Penney and Costco.

Same-store sales, which measure sales at stores open at least a year, are a key gauge of a retailer’s performance.

Conversely, weakness in sales of school merchandise doesn’t bode well for holiday sales. That was the case last year when same-store sales rose 1.9% over July and August combined, down from 3% in 2007. Subsequently, holiday sales fell 1.5% in 2008 after rising 2.3% the prior year.

Martis said many parents will also “definitely wait” for sales tax breaks before they start shopping for school products.

Last year, 16 states — including Texas, Virginia and Georgia — offered tax-free shopping days, mostly in August, on clothing, computers and general school supplies.

Martis expects three retailers to do particularly well this back-to-school season — Wal-Mart, Aeropostale and Buckle.

“Consumers will go to Wal-Mart for its discount prices,” Martis said. Aeropostale and trendy merchandise seller Buckle will resonate most with teen shoppers, she added.

Clouds linger: But at least one industry watcher isn’t seeing any signs of optimism on the horizon.

Citing tightness in the credit market, Burt Flickinger, managing director of consulting firm Strategic Resource Group, expects back-to-school sales will be 4% to 5% lower than last year.

That said, Flickinger expects holiday sales “will be OK.”

Besides credit issues, Flickinger anticipates higher gas, food and drug prices later this year will put a crimp on sales of discretionary items.

“Consumers are facing much more day-to-day inflation during summer than in spring,” Flickinger said. “I’ve talked to many retail CEOs, and they are not seeing what analysts are seeing.”

“There’s high unemployment, including high teen unemployment. Credit lines are being cut by stores and credit card companies,” he said. “For back-to-school, students and parents will only buy what is needed.”

For further information, visit: http://money.cnn.com/2009/06/10/news/economy/retail_backtoschool/

Renovating Wal-Mart But Keeping Customer Loyalty

June 9, 2009

The bad times have been good for Wal-Mart Stores, and on Friday, the retailer’s new chief executive said he expected sales to continue to be strong, even after the economy rebounds.

“Our customers will stay with us when this economy turns around and they have more discretionary money to spend,” Michael T. Duke, the president and chief executive of Wal-Mart, told attendees at his first shareholder meeting since taking the helm this year. “We are building long-term loyalty to Wal-Mart.”

Like some other retailing executives, Mr. Duke says he thinks the recession has prompted a fundamental change in consumer behavior — a “new normal” in which people are concerned about saving money.

If true, that bodes well for Wal-Mart, which has built its reputation on low prices.

Wal-Mart’s profit was flat for the three months that ended April 30 — $3.02 billion, or 77 cents a share, compared with the same $3.02 billion, or 76 cents a share, a year ago. Still, its sales at stores open at least a year have outperformed competitors, including its primary rival, Target. During the shareholder meeting, which began promptly at 7 a.m., the actor Ben Stiller, the meeting’s host, quipped, “I hear they’re still sleeping at Target.”

Separately, Wal-Mart announced that it would start a new $15 billion program to repurchase shares. The news sent shares of Wal-Mart up 20 cents, to $51.07.

Media tours of Wal-Mart and Sam’s Club stores on Thursday offered some details about how the retailer planned to hold onto its new customers.

Executives said a new store design and remodeling plan would make Wal-Mart stores more pleasant. They also plan to expand thriving departments, like food and electronics.

The most popular items that families buy — groceries, health and beauty goods, pet products and baby products — will be located on the same side of the store, so customers do not have to trek from one end to another. Shelves will no longer be stacked so high, so stores will feel airier and easier to navigate.

There will be more signs pointing out the low prices of items, wider aisles without freestanding product displays, and, in general, fewer brands so consumers are not overwhelmed by 25 different kinds of toothpaste.

The electronics department — a hit with consumers who want brand names at low prices — will be expanded and will offer more hands-on products so consumers can test technology like portable electronics and Blu-ray players. Also, electronics departments will be located on the back wall of stores so consumers see a wall of sleek TVs when they enter.

The food and produce area, which has helped increase sales in this economy, will also be expanded. Signs that say “fresh” will be near store entrances, along with the take-out food, deli and bakery areas so consumers can dash in and out if they want to. That could cut down on browsing and impulse purchases. But executives said the changes were a response to consumer research.

In a question and answer session after Friday’s shareholder meeting, Eduardo Castro-Wright, Wal-Mart’s vice chairman, said the retailer would retain its new customers by doing what it had been doing the last few years: making its stores friendlier and cleaner, and speeding up the check-out process.

Wal-Mart’s annual shareholder gatherings are spectacles: part vaudeville show, part revival meeting. Smokey Robinson, Miley Cyrus, and this year’s American Idol winner, Kris Allen, performed. The basketball player Michael Jordan spoke. On Wednesday night, Wal-Mart invited store employees from all over the world to concerts by the rock group Foreigner and by Chris Daughtry, a former American Idol contestant.

Amid the hubbub, the retailer said it was beginning an initiative to help promote women at Wal-Mart. Mr. Duke said he was “still not satisfied with our progress to date.”

Wal-Mart also used the meeting to highlight its entry into Chile with D&S, a major grocery chain. Additionally, executives said the retailer would continue using its size to achieve supply-chain efficiencies, recruit top talent and continue down the path toward environmental sustainability, a legacy of its former chief executive, H. Lee Scott Jr.

“Yes, sustainability was personal for Lee,” Mr. Duke said during the question-and-answer session, “but it’s personal for me.”

Wal-Mart surpassed $400 billion in sales for the first time during its last fiscal year. But Mr. Duke’s overriding message on Friday was typical of Wal-Mart’s approach to its business.

“This is not a time to take comfort in our success,” he said. “This is Wal-Mart’s time to look to the future and seize the opportunity to truly lead around the world.”

For further information, visit: http://www.nytimes.com/2009/06/06/business/economy/06walmart.html

Consumers Are More Optimistic

May 26, 2009

Consumer confidence extended its rebound in May, soaring to the highest level since last September as more shoppers are feeling the worst of the recession is behind them.

The Conference Board said Tuesday that its Consumer Confidence Index, which had dramatically increased in April, zoomed past economists’ expectations to 54.9 from a revised 40.8 in April. Economists surveyed by Thomson Reuters were expecting 42.3. In February, confidence levels had hit a new historic low of 25.3.

The reading marks the highest in eight months when the level was 61.4. The levels are also closer to the year-ago’s 58.1, though the widely watched barometer is still below 100, which indicates a healthy economy.

The Present Situation Index, which measures how shoppers feel now about the economy, rose to 28.9 from 25.5 last month. But the Expectations Index, which measures shoppers’ outlook over the next six months, climbed to 72.3 from 51.0 in April.

Investors focused on the upbeat sentiment reading, shaking off a mostly downbeat report on the housing market, also released Tuesday. In midmorning trading, the Dow Jones industrial average rose 130.62, or 1.6 percent, to 8,407.94.

“Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labor market and incomes will improve in the coming months,” Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement. “While confidence is still weak by historic standards, as far as consumers are concerned, the worst is now behind us.”

The confidence report offered encouraging news to merchants,which are counting on consumers to be in the mood to spend after confidence plummeted to historic lows late last year but has been rising since March. A two-month stock rally has helped make shoppers feel a little better about their retirement funds, spurring dramatic rebounds in confidence in April and May levels.

Meanwhile, better-than-expected earnings results from such retailers as Sears Holdings Corp. and Gap Inc. have offered the latest evidence that spending has begun to stabilize, though overall business is still weak.

The size of the monthly increases in April and May in consumer confidence encouraged economists. Gary Thayer, chief economist at Wells Fargo Advisors, says that unless the economy suffers from major financial shocks, it looks like “we’ve turned the corner” on confidence.

“This is a significant change,” said Thayer. “While (consumers) are unhappy about their job situation and their home values, they see light at the end of the tunnel.” He added, however, sentiment has a way to go before shoppers go back to splurging. That can only happen when the job and housing markets, which have been holding down sentiment, start to turn around.

The latest report on home prices, released Tuesday, wasn’t comforting. Home prices fell at the fastest annual rate on record in the first quarter, though the pace of month-to-month declines continues to slow, according to a closely watched housing index.

The Standard & Poor’s/Case-Shiller National Home Price index reported home prices tumbled by 19.1 percent in the first quarter, the most in its 21-year history.

Home prices have fallen 32.2 percent since peaking in the second quarter of 2006 and are at levels not seen since the end of 2002.

Meanwhile, Americans continue to cut back on nonessentials like furniture while focusing on buying necessities as they worry about their jobs. The unemployment rate is expected to climb to 9.2 percent in May from 8.9 percent in April and employers are expected to shed a net total of 523,000 jobs, according to economists surveyed by Thomson Reuters. The Labor Department is expected to release unemployment figures on June 5.

The Consumer Confidence survey – whose responses were received through May 19 from a representative sample of 5,000 U.S. households – showed a marked improvement in consumers’ outlook for jobs. The percentage of consumers expecting more jobs in the months ahead increased to 20.0 percent from 14.2 percent, while those anticipating fewer jobs declined to 25.2 percent from 32.5 percent. The proportion of consumers anticipating an increase in their incomes edged up to 10.2 percent from 8.3 percent. For further information, visit: http://www.forbes.com/feeds/ap/2009/05/26/ap6464963.html