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

Steeper Declines In May Than Analysts Expected

June 5, 2009

Macy’s Inc., Dillard’s Inc. and Saks Inc. reported steeper May sales declines than analysts estimated as rising unemployment prompted U.S. consumers to save instead of spend. 

Sales at U.S. stores open at least a year fell 9.1 percent at Macy’s, the second-biggest U.S. department-store chain, compared with the 8.8 percent average of analysts’ estimates compiled by Retail Metrics Inc. Sales at Dillard’s department stores dropped 12 percent, a bigger decline than the 7 percent analyst projection. Luxury retailer Saks’s sales plunged 26.6 percent; analysts had predicted 14.5 percent, on average.

Consumers are still limiting purchases and allocating leftover funds to necessities rather than discretionary items, according to Brian Sozzi, an analyst at research firm Wall Street Strategies in New York. Sales at higher-end department stores slumped as shoppers cut purchases of handbags, shoes and clothes, forcing the chains to offer more and deeper discounts.

“Diminished job prospects, wealth evaporation and weak wage growth continues to be at the forefront of consumer psyche, meaning fewer dollars sloshing around the world of retail and lack of visibility into the back half of 2009,” Sozzi said in a June 1 note.

Macy’s fell 44 cents, or 3.3 percent, to $12.88 at 4:05 p.m. in New York Stock Exchange composite trading. Dillard’s declined 71 cents, or 6.9 percent, to $9.65. Saks fell 1 cent to $4.04. The Standard & Poor’s 500 Retailing Index declined 1.2 percent today, and has climbed 20 percent this year.

Saks, based in New York, has cut 1,100 jobs in recent months and said it would reduce merchandise orders 20 percent this year. Cincinnati-based Macy’s has slashed prices to clear inventories.

Retailers that managed to attract some consumer dollars included Aeropostale Inc., Gap Inc.’s Old Navy division and TJX Cos. Their May sales beat analysts’ estimates, helped by lower prices and a focus on value. Kohl’s Corp. and J.C. Penney Co. also exceeded predictions as the budget-conscious opted to shop at lower-priced department stores.

“Kohl’s and Penney’s may be pulling share from both the traditional department stores and from discounters,” Jeffrey Klinefelter, an analyst at Piper Jaffray Cos. in Minneapolis, said today in a telephone interview.

Retail Metrics said today that U.S. comparable-store sales in May dropped 4.4 percent, worse than its projected 3.6 percent decline. Yesterday, the Swampscott, Massachusetts-based researcher said that while housing, construction spending and new factory orders are coming in “less worse” than expected, retailers and consumers remain under pressure as job cuts continue.

May accounts for the smallest portion of retailers’ second-quarter sales, according to Betty Chen, an analyst at Wedbush Morgan Securities in San Francisco.

Wal-Mart Stores Inc., the world’s largest retailer, said on May 14 that sales at U.S. stores and its Sam’s Club membership warehouse division may rise as much as 3 percent in the 13 weeks through July 31. The chain stopped reporting monthly same-store sales as of May 1, citing the difficulty of predicting shoppers’ behavior.

U.S. consumer spending fell for a second straight month in April as concern over rising unemployment and record wealth destruction prompted households to boost savings rates to the highest level in 14 years, according to the Commerce Department. The 0.1 percent drop followed a 0.3 percent decrease in March, Commerce Department figures showed. The savings rate rose to 5.7 percent, spurred by an unexpected jump in incomes linked to the fiscal stimulus.

“Until people feel confident in their employment and feel confident in their ability to maintain their housing situation, they’re going to continue to rebuild their rainy-day fund to the extent that they possibly can, and that translates to higher savings rates,” said Bryan Eshelman, managing director in the retail practice at Alix Partners LP, a consulting firm.

Retailers continue to cut prices. Aeropostale was offering 20 percent off women’s dresses. American Eagle Outfitters Inc. was giving 50 percent off the purchase of a second graphic t- shirt.

Companies in the U.S. cut an estimated 532,000 workers from payrolls in May, according to yesterday’s ADP Employer Services report. Economists surveyed by Bloomberg predict the U.S. unemployment rate for May will rise to 9.2 percent from 8.9 percent in April.

Still, confidence among U.S. consumers jumped in May by the most in six years. The Conference Board’s index surged more than forecast to 54.9, the New York-based research group said May 26.

“There is a bit of unfounded optimism out there,” Eshelman said yesterday in a telephone interview. “Once this economy turns the corner, I think it will turn the corner rather quickly, but the conditions have just not aligned to get to that point.”

The International Council of Shopping Centers said that May same-store sales dropped 4.6 percent, more than its forecast of a 2 percent decline. The New York-based trade group’s figure is based on results at 32 chains.

The comparison to a year ago was difficult because federal tax rebate checks spurred more spending last May, Michael Niemira, chief economist at the ICSC, said today in a telephone interview. June sales may drop as much as 4 percent, he said.

For further information, visit: http://www.bloomberg.com/apps/news?pid=20601087&sid=a0rrp1uLy8B4

Decline In May Sales

June 4, 2009

Many U.S. retailers said same-store sales fell in May, as expected, as shoppers continue to spend cautiously, focusing on bargains and food.

The declines came in largely in line with analyst expectations, with frequent standouts such as The Buckle Inc. posting better results. Costco Wholesale Corp. and mall retailer Limited Brands Inc. reported declines.

“There’s general softness across the board, as consumers continue to face rising unemployment, falling home values and rising gas prices,” said Ken Perkins, president of retail consulting firm Retail Metrics LLC. “One good sign so far is that results aren’t coming in drastically worse than expected, so maybe there is stabilization taking place here.”

Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance because they measure growth at existing stores rather than newly opened ones. Economists closely monitor consumer spending because it accounts for about 70 percent of U.S. economic activity.

Drawing conclusions about the broader economy from the numbers is more difficult, Perkins said, because Wal-Mart Stores Inc., the world’s largest retailer, stopped reporting monthly same-store sales as of this month. Wal-Mart accounts for about 10 percent of retail sales.

The world’s largest retailer also has been a standout in recent months. “Wal-Mart has been lifting everybody for the last year and half,” Perkins said.

Food and necessities continue to be the strongest sellers. Warehouse club operator Costco Wholesale Corp. said same-store sales slipped 7 percent in May. Its strongest categories included food and fresh food products.

Teen apparel retailer The Buckle Inc. continued to outperform, as same-store sales rose 13.4 percent, above expectations.

Limited Brands, which operates Victoria’s Secret and Bath & Body Works stores, said same-store sales fell 7 percent, matching analyst expectations.

Children’s Place Retail Stores Inc. reported a 9 percent drop, well below analysts’ estimates of an 0.1 percent rise.

For further information, visit: http://www.nytimes.com/aponline/2009/06/04/business/AP-US-RetailSales.html

Retailers Supplying Consumers The Forever Sale

May 27, 2009

Retailers are keeping cool when it comes to markdown madness.

Even this past Memorial Day weekend, the traditional trigger for major spring clearances, stores appeared to take a more measured approach to markdowns than that seen last holiday season and earlier this year. And it may stay that way for the summer.

“Promotions through Memorial Day weekend appeared to be ‘deals not steals’ geared at specific categories,” Todd Slater, managing director and specialty retail, apparel and footwear analyst at Lazard Capital Markets, wrote in a research report Tuesday. “Fewer promotions indicate May is on track.”

“It’s sort of moderated. I don’t see anything improving greatly,” said one retail chief executive. “There’s been nothing as momentous as someone knocking down everything in the store 70 percent before Thanksgiving,” referring to Saks Fifth Avenue’s dramatic clearances last holiday season. “It’s really difficult to sell at full price. People have been marking down, but it’s been a little more subtle and not as blatant.”

Given the poor economy, retailers have been marking down spring merchandise almost since it hit the floor in January, offering one-day sales, private events or other promotions and have been fairly successful in getting inventories in line with demand. This month has been marked by steadily increasing markdowns and merchandise deals. Retailers realize they are by no means out of the woods and the vast majority are yielding negative same-store sales results. Business is worst at the high end, and best at a handful of off-pricers, outlets and low-price stores such as The TJX Cos. Inc. and Wal-Mart Stores Inc.

Yet the general tone has changed. There’s none of the despair and desperation that characterized the fourth quarter and early 2009 when store traffic screeched to a halt and retailers responded with chaotic promoting. The price cutting now seems more planned and organized and there’s a growing sense coming from the likes of Saks Fifth Avenue, Macy’s and other big retailers that business has bottomed out despite the rising unemployment rate.

Memorial Day weekend, according to store executives and analysts, was buoyed by some pent-up demand; many buy-one, get-one free deals [known as BOGOs] at youth specialty stores; steep markdowns up to 70 or 75 percent in select categories at department stores, and near ideal weather conditions, particularly in the Northeast.

“Going into Memorial Day, we saw a big pickup in promotional activity and a big pickup in traffic. That tells me there was ground to be made up,” said Amy Noblin, research analyst, Pali Capital. However, “Retailers continue to work through clearance merchandise fairly well as promotional breadth moves down in many cases.”

Noblin noted that Aéropostale Inc. extended its BOGO promotion from tanks and camis to shorts and polos; American Eagle Outfitters Inc. stayed at a similar promotional breadth, even with the arrival of the summer update floor set, and Zumiez saw “a drastic reduction in depth of markdowns compared with previous visits; however, the store still remains promotional.”

“It depends on the player, but my sense is that traffic last weekend was flattish,” said one retail ceo of a specialty chain. “For the month, it may have been down a few points, but it’s looking a little better.”

In addition, comparisons are fairly easy, as Slater noted. He said the retail group faces a 1.4 percent comp in May (except Wal-Mart) and that specialty stores are up against a negative 7 percent in May, while department stores cycle negative 3.1 percent in May.

Macy’s staged a 25 to 75 percent off storewide sale with an extra 15 percent off coupon for selected items. Bloomingdale’s offered an extra 40 percent off almost all permanently reduced women’s fashion, making for 50 to 75 percent off, and 25 to 40 percent off swim, sandals and a selection of designer handbags. Nordstrom started its traditional half-year sale at 33 percent off and higher for select items.

Henri Bendel offered up to 60 percent off a large selection of apparel and accessories.

However, major retailers don’t expect price promotions to reach the levels they did late last year. “I certainly don’t anticipate the kinds of aggressive markdowns we were seeing last fall, largely because you don’t have the same kind of supply-and-demand situation,” Saks’ chairman and chief executive officer Stephen I. Sadove said last week, while the store’s president and chief merchandising officer Ron Frasch added, “Markdown dollars were very much in control. We have been very cautious with the promotional portion of our business. We have every hope of running a normal pattern of promotions this quarter.”

Earlier this month, Macy’s ceo Terry Lundgren said retailers have returned a “pretty regular promotional cadence,” similar to spring 2008. “Supply and demand is back in order again.”

Michael Celestino, executive vice president of stores at Barneys New York, characterized the Memorial Day weekend’s business as “pretty much on par with the trend for the season.”

As far as Barneys’ private sale offering 40 percent off selected merchandise for a week through Memorial Day, Celestino said, “We got a good response. It was what we expected. People are still being motivated by sale. The private sale pretty much followed the normal cadence of our markdown strategy at this point. Items and percentage [discounts] were pretty normal with what we typically do in a normal season.” Barneys will run final markdowns in July in advance of its warehouse sale in August.

Even on Madison Avenue, where the designer business is hurting and customers aren’t satisfied with markdown levels, there is some light ahead. Shipments are coming in earlier than a year ago, potentially spurring traffic. “Our stores are ready for newness,” said Diane Levbarg of Missoni. “Ninety percent of all pre-fall Missoni is ready to be shipped, in time for the beginning of June. I am very pleased with our production department in Milan.”

For further information, visit: http://www.wwd.com/retail-news/the-forever-sale-retailers-slow-pace-of-markdowns-2145445#/article/retail-news/the-forever-sale-retailers-slow-pace-of-markdowns-2145445?page=1

Uncertainty Still In the Air

May 27, 2009

Apparel retailers Chico’s FAS Inc, Charming Shoppes Inc, American Eagle Outfitters Inc and Polo Ralph Lauren Corp posted better-than-expected quarterly results Wednesday, helped by tight management of expenses and inventories.

American Eagle also said it is seeing early indications of its business stabilizing, though it forecast second-quarter earnings that could be below Wall Street estimates.

Apparel retailers and manufacturers have been among the hardest hit sectors in the recession as consumers cut back on spending for anything other than essentials like food.

Retailers have responded by cutting inventories and sharply reducing expenses in order to preserve profits or mitigate losses as sales fall.

While consumer confidence has improved, unemployment continues to rise, credit remains tight and home values continue to fall, keeping pressure on consumer spending, which makes up more than two-thirds of the U.S. economy.

“We are now two months into fiscal 2010 and there is still tremendous uncertainty regarding how long the current retrenchment in consumer spending will last or how much additional deterioration in personal consumption may occur,” Polo Chief Financial officer Tracey Travis said on a conference call with analysts.

PROFIT FALLS AT AMERICAN EAGLE, POLO

American Eagle, which caters to teenagers and young adults, said net income tumbled to $22.0 million, or 11 cents per share, in its first quarter, ended on May 2, from $43.9 million, or 21 cents per share, a year earlier.

Excluding items, profit was 8 cents per share. Analysts on average were expecting 7 cents per share, according to Reuters Estimates.

Sales fell 4 percent to $612 million.

On the women’s apparel side, Chico’s said net income in its first quarter was $14.5 million, or 8 cents per share, up from $12.7 million, or 7 cents per share, a year earlier.

Excluding charges, the company earned 11 cents per share, topping analysts’ average estimate of 8 cents per share, according to Reuters Estimates.

Chico’s cited a higher gross margin and lower expenses for its improved profit.

As previously reported, sales edged up to $410.6 million from $409.6 million. Same-store sales fell 3.2 percent versus the 17.5 percent drop in the year-ago quarter.

Charming Shoppes, which specializes in plus-size clothing with chains like Lane Bryant, had a surprise profit of 1 cent per share, excluding items, according to Reuters Estimates. Analysts were expecting a loss of 5 cents per share.

Charming Shoppes’ sales fell 16 percent, but total expenses also fell 16 percent.

Polo Ralph Lauren, the fashion company that makes upscale brands like Polo and Club Monaco, said net income was $45 million, or 44 cents a share in its fiscal fourth quarter ended March 28, down from $103.5 million, or $1 per share, a year earlier.

Excluding impairment and restructuring charges, the company said it earned 86 cents per share.

Analysts on average forecast 40 cents a share, according to Reuters Estimates.

Polo shares rose $3.20 to $57.58 on the New York Stock Exchange on Wednesday morning, while Chico’s rose 67 cents $9.52, and American Eagle rose 71 cents to $15.19. Charming Shoppes rose 15 cents to $3.73 on Nasdaq. For more information, visit: http://www.nytimes.com/reuters/2009/05/27/business/international-usa-retail-apparel.html

According to the Stocks, the Worst of the Recession is Over

May 26, 2009

A more upbeat mood among consumers is spreading to Wall Street.

Stocks jumped Tuesday after a research group reported consumer sentiment rose in May to the highest level since September.

The Conference Board’s Consumer Confidence Index vaulted to 54.9 from 40.8 last month, soaring past the 42.3 figure that economists surveyed by Thomson Reuters were expecting.

Investors watch that indicator closely to get a sense of whether consumers may start shopping more or making bigger purchases such as cars and homes, which could help get the economy going again. Spending by consumers makes up more than two-thirds of U.S. economic activity.

Stocks had opened lower after North Korea reportedly defied the United Nations by firing two short-range missiles after detonating a nuclear bomb underground on Monday. The U.N. Security Council condemned the test.

Jim King, chief investment officer at National Penn Investors Trust Co., said the improvement in consumer confidence surprised investors. With unemployment still high and expected to go higher, many market watchers thought the mood on Main Street would remain gloomy.

“I think the consumer confidence figure is one that no one really pinned a lot of hopes on as going higher,” he said.

In midday trading, the Dow Jones industrial average rose 175.62, or 2.1 percent, to 8,452.94. The Standard & Poor’s 500 index rose 19.27, or 2.2 percent, to 906.27, and the Nasdaq composite index rose 52.60, or 3.1 percent, to 1,744.61.

Stocks dependent on strong consumer spending jumped. Macy’s Inc. (M, News) rose 52 cents, or 4.7 percent, to $11.71, while Best Buy Co. (BBY, News) advanced $2, or 5.7 percent, to $37.18. Home builder KB Home rose 76 cents, or 5.2 percent, to $15.40.

The gains in home builder stocks came as investors shook off a mostly downbeat reading on the housing market. S&P/Case Shiller reported a 18.7 percent drop in its March home price index. The decrease was a little bigger than in February, and slightly larger than economists predicted.

Investors have been questioning whether the stock market’s massive two-month rally can be sustained given the continuing weakness in the global economy. The Dow is still up 26.4 percent from its 12-year low hit on March 9.

After mixed economic data over the last couple weeks, as well as a huge number of stock offerings by banks, the market is likely to stay volatile in the coming weeks, said Steven Goldman, chief market strategist at Weeden & Co. “The market’s had a pretty huge gain here,” he said.

Last week, the major market indexes ended modestly higher, but only after seesawing on worries about the economy and banks.

This week, the market is not only hoping for signs of global stability, but also watching General Motors Corp. (GM, News) as the automaker’s June 1 restructuring deadline approaches. GM is expected to close more plants and force more employee concessions as it tries to avoid bankruptcy court.

On Friday, GM borrowed another $4 billion from the U.S. government, after already received $15.4 billion. GM shares fell 20 cents, or 14 percent, to $1.23.

In other trading, the Russell 2000 index of smaller companies rose 19.02, or 4 percent, to 496.64.

About five stocks rose for every one that fell on the New York Mercantile Exchange, where volume came to 488.3 million shares.

Bond prices fell, pushing the yield on the 10-year Treasury note up to 3.47 percent from 3.46 percent late Friday.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell 7 cents to $61.60 per barrel on the New York Mercantile Exchange.

Overseas, Japan’s Nikkei stock average fell 0.4 percent. In afternoon trading, Britain’s FTSE 100 rose 1.1 percent, Germany’s DAX index rose 1.4 percent, and France’s CAC-40 rose 1.2 percent. For further information, visit: http://www.examiner.com/a-2034924~Stocks_jump_after_consumer_confidence_level_surges.html