By and  on August 1, 2011

Stock markets were caught in a will-they-or-won’t-they limbo Mondayas Washington lawmakers worked to finalize a deal to raise the nation’sdebt ceiling and avoid a potentially catastrophic default.

Marketszigzagged from the opening bell and spent most of the session well inthe red, then recovered as the close neared. Retail fared worse thanother sectors throughout the day. The S&P Retail Index ended off 1percent, or 5.22 points, at 533.94, as the Dow Jones Industrial Averageclosed with a decline of just 10.75 points to 12,132.49.

Theretail decliners included Express Inc., down 5.8 percent to $21.15; SaksInc., 2.1 percent to $10.51, and J.C. Penney Co. Inc., 1 percent to$30.45. Bucking that trend was Zale Corp., which gained 9.8 percent to$6.16.

The deficit reduction package being pushed by PresidentObama and Congressional leaders would raise the debt limit by between$2.1 trillion and $2.4 trillion and impose 10-year spending caps on theoperating budgets of the government’s federal agencies. This wouldresult in a collective reduction in annual domestic spending of nearly$1 trillion over the next decade, according to a White House fact sheet.

Theoutline of the plan does not include specifics on which Cabinet agencybudgets or programs might be cut, but areas important to the fashionindustry, such as the cotton or wool trust funds, textile enforcementand port security could face reductions. In addition, budgets forfederal agencies governing trade, such as the U.S. TradeRepresentative’s office and Commerce Department, could face reductionsin operating funds.

The broad package also includes a secondtranche of spending cuts, which will be determined by a special jointcommittee tasked with identifying an additional $1.5 trillion in cuts,including from entitlement and tax reform, over 10 years.

Barringa last-minute breakdown in the debt deal, retail investors can start toturn their attention to July comparable-store sales results due onThursday and an update on the nation’s unemployment rate and payrolls onFriday.

While payrolls are expected to gain versus last month’svery poor showing, analysts see July sales as a mixed bag for retailers.

“Extremeheat during the month drove shoppers to malls in search of coolertemperatures,” said Adrienne Tennant, an analyst at Janney CapitalMarkets. “The heat…has been very helpful in driving traffic during themonth and while we expect July to be another solid sales month forretail, we do expect it to have slowed from June’s very strong levels.”

Tennantsaid comps would be largely positive for softline retailers, but thatinvestor expectations are also high.

Eric Beder, an analyst atBrean Murray, Carret & Co., said July was a tepid month for chainstargeting teens. The analyst noted that teens and their parents werewaiting for sales or the last minute to buy and that the back-to-schoolseason has been price-driven for the last three years.

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