Despite soothing words from Federal Reserve chairman Ben Bernanke on Thursday, who said he supported an economic stimulus package, investors remained weary of the economy after a Fed report showed a sharp decline in manufacturing activity.
As a result, the Dow Jones Industrial Average lost more than 300 points in afternoon trading, closing down 2.5 percent to 12,159.21 while the S&P 500 fell 2.9 percent to 1,333.27. Apparel shares were mixed with the S&P Retail Index shedding 0.7 percent to 371.45.
Sports apparel retailer Under Armour Inc. was among the New York Stock Exchange’s list of biggest decliners, falling 13.1 percent to close at $37.23. This came after Goldman Sachs cut earnings estimates on a number of footwear and athletic apparel companies including Nike, Columbia Sportswear and Lululemon Athletica Inc.
Under Armour released financial results for 2007 after market. The company said it expects 2007 income from operations to exceed previous guidance of $81.5 million to $83 million, resulting in diluted earnings per share of approximately $1.03 to $1.04 for the full year. The firm also reiterated its 2008 outlook and expects earnings in the first half of the year in the range of 3 cents to 5 cents a diluted share.
Teen apparel retailer Aéropostale Inc. sank 6.7 percent to $21.89. On Wednesday the company said it was being investigated by the Securities and Exchange Commission on the activities of a former executive vice president and chief merchandising officer.
Quiksilver Inc. was one of the biggest gainers on the NYSE, rising 5 percent to $7.39 on an upgrade by Morgan Keegan. The company previously announced it might sell ski-equipment maker Rossignol. And women’s apparel retailer Charming Shoppes Inc. was up 7.4 percent to $4.94 after an investor group named three people to the company’s board in an effort to refocus the business, according to a release.
Bernanke testified before the House Budget Committee on Thursday, telling lawmakers that a quickly implemented, temporary, short-term plan would have a “significant” and “measurable” impact on the economy. He is looking to inject money into the weakening economy and offset a looming crisis that has prompted consumers to sharply curtail spending.
Although he declined to support specific stimulus proposals, Bernanke stressed that initiatives such as tax rebates would be more effective in the short term than efforts to make permanent President Bush’s tax cuts that expire in 2010.
“I think those who support making the president’s tax cuts permanent…would say that the primary reason for advocating that would be for long-term growth purposes,” Bernanke told lawmakers, who are considering a $100 billion package that will likely include tax refunds for consumers. “From the point of view of getting a stimulus in the next few months…I suggest that measures involved in putting money into the hands of households and firms that would spend it in the near term would be more effective,” adding that he would not take a position on the politically sensitive issue of making long-term tax cuts permanent.
The National Retail Federation, representing major retailers who are concerned about the slowdown in consumer spending that makes up two-thirds of the economy, sent a letter to President Bush and Congressional leaders on Thursday urging rapid action on a stimulus package.
“U.S. retailers, who are the bellwether for our nation’s changing economic climate, are greatly concerned about the softening of the U.S. economy,” NRF president and chief executive officer Tracy Mullin wrote in the letter. “2007 holiday sales were the weakest since 2002, and as the new year begins, consumer spending remains sluggish.…We agree with economists who say the fastest way for a stimulus to enter the economy is through the consumer.”