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Retail sales fell sharply last month { May 11 2007 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2007/05/11/business/11econ.html?ref=businesshttp://www.nytimes.com/2007/05/11/business/11econ.html?ref=business
May 11, 2007
Retail Sales Fell Sharply Last Month
By JEREMY W. PETERS and MICHAEL BARBARO
From department stores to discount chains, sales were dismal last month, suggesting that rising gas prices and the flagging housing market are starting to weigh on American consumers.
Worries about the economy fueled by the results of retailers for April, including a report from Wal-Mart Stores that its monthly sales fell by the largest percentage on record, helped make for Wall Street’s worst day in almost two months.
The Standard & Poor’s 500-stock index dropped from a six-year high to lose 1.4 percent. The Dow Jones industrial average shed nearly 150 points, or 1.1 percent, while Nasdaq lost 1.7 percent. [Page C9.]
“At a very minimum, the consumer is in some sort of retreat,” said Ed McKelvey, senior economist for Goldman Sachs. “This may just be a bumpy transition to a slower growth mode, or it might be something a little more serious.”
Beyond the troublesome outlook for consumer spending — the mainstay of the economy this decade — signs emerged yesterday as well that growth in the first quarter may have been slower than first thought.
The government reported that the imbalance between what Americans export and import widened in March to the highest level in six months. As a result, many economists said they expected that growth in gross domestic product for the first quarter could be revised to a level below 1 percent, down from the already sluggish 1.3 percent initially estimated.
For retailers, April was a month to forget. Collectively, the industry reported its worst monthly sales slump in at least six years.
Retailers pointed to a variety of special circumstances, from wet weather that reduced interest in spring clothing to an early Easter, which lifted sales in March at the expense of April. But even after taking those short-term factors into account, the results were disappointing. Sales slid 1.8 percent during the month, according to Retail Metrics, a research firm. That was well below analysts’ expectations, with Wal-Mart Stores and Target being the hardest hit.
Bill Dreher, an analyst at Deutsche Bank Securities, said that the earlier-Easter argument did not appear to hold up. Even after combining sales for March and April, he said, sales at both Target and Wal-Mart fell significantly this year compared with last.
“That tells us that something else is going on,” he said. “There is a consumer spending slowdown.”
Not everybody agreed with that assessment, however.
The housing industry has been going through a correction since late last summer, yet until recently there was little evidence it was denting consumer spending. And consumers appeared equally unfazed when gasoline prices started climbing last summer. It may take a little while before it is clear whether last month’s pullback in spending at the malls points to a longer-term slowdown.
“Just because it’s a convincing story that higher gas prices and a slowdown in the housing market should lead to slower consumer spending doesn’t make it true,” said Markus Schomer, an economist with AIG Global Investment Group. “We’ve not seen a significant decline in consumer confidence. We’ve not seen a more serious slowdown in job creation. I don’t see what should now finally trip us into a recession, or even weaker economic growth.”
Still, whatever the future holds, retailers are suffering now. “Terrible” was the verdict from Ken Perkins, president of Retail Metrics. “With Wall Street looking for weak April retail sales,” he added, “retailers did not disappoint.”
A sales falloff at stores open for at least a year was experienced nearly across the board. Sales fell 16 percent at Gap, 10.5 percent at Kohl’s, and 4.7 percent at J. C. Penney.
The department store industry, on a rebound for months, was not immune.
The parent company of Macy’s, Federated Department Stores, has attributed its sales slowdown over the last year to the outlets of the former May Department Stores, which it acquired in 2005. Today, it said performance was weak across its entire chain. Sales fell 2.2 percent.
“April sales were disappointing across the country in both new and legacy Macy’s stores,” said Terry J. Lundgren, the chief executive of Federated, who said that a May promotion event was moved up to April this year but “did not produce the results we expected.”
A sour tone for the month was set by American Eagle Outfitters, whose sales are typically strong. The company, which sells clothing mostly to teenagers, reported a 10 percent sales decline for April.
There were a few bright spots — but very few. Saks, which has returned to its classic luxury roots resulting in stronger sales over the last year, said sales rose 11.7 percent in April.
Few economists are predicting a sharp pullback by consumers. But many said they viewed April’s retail numbers as the first indication that Americans are turning more cautious.
“We’ve had two quarters of nothing less than spectacular consumer spending,” said Richard Yamarone, director of economic research at Argus Research. “This may be the first sign of subpar spending by the consumer.”
Copyright 2007 The New York Times Company
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