By and and  on September 21, 2011

Banking and political leaders the world over are trying to nudge their economies back into growth mode, but the market’s crisis of confidence appears to be only worsening — and retail shares are feeling the pain.

The Federal Reserve, led by chairman Ben S. Bernanke, unveiled plans Tuesday to buy $400 billion in longer-term treasury debt and sell shorter-term debt in an effort to push interest rates lower. That could help more people refinance their home loans, reducing monthly payments and, the hope is, spur spending.

But the Fed also acknowledged slow growth, the prospect of continued high unemployment and “significant downside risks to the economic outlook, including strains in global financial markets.”

Wall Street had been eagerly awaiting word from Bernanke, but was left disappointed. The S&P Retail Index closed down 2.3 percent, or 11.90 points, to 514.46, as the Dow Jones Industrial Average sank 2.5 percent, or 283.82 points, to 11,124.84. Retailers of all stripes took a hit, including Macy’s Inc., down 4.5 percent to $26.12; Coach Inc., 4.4 percent to $56.76; Tiffany & Co., 3.8 percent to $72.19; Abercrombie & Fitch Co., 3.2 percent to $65.63, and Wal-Mart Stores Inc., 1.9 percent to $51.32.

In Europe, traders fretted over the fate of the currency union that leaders there are trying to save and hit the sell button, sending the DAX down 2.5 percent in Frankfurt, the FTSE MIB down 1.7 percent in Milan and France’s CAC 40 decreasing 1.62 percent, while the FTSE 100 in London fared the best, falling 1.4 percent.

Luxury and retail stocks put in a mixed performance, with the day’s biggest winners being Italian eyewear maker Marcolin, which rose 9.9 percent to 4.48 euros, or $6.14 at current exchange; Ferragamo, up 1.1 percent to 12.39 euros, or $16.97, and Mulberry, which rose 1.2 percent to 15.80 pounds, or $24.85, after an upbeat, much-publicized runway show earlier in the week.

The biggest losers of the day included Esprit Holdings, which fell 11.7 percent to 1.64 euros, or $2.25; LVMH Moët Hennessy Louis Vuitton, which was down 1.4 percent to 113.85 euros, or $155.97, and the Italian fashion manufacturer Aeffe, which was down 3.9 percent to 0.78 euros, or $1.07.

Earlier this month, President Obama presented a $447 billion plan to spur employment that also left investors flat. And European leaders have repeatedly tried to calm fears over the continent’s burgeoning debt crisis, stretching from Greece to Italy, with only mixed results.

Standard & Poor’s, in downgrading Italy’s debt this week, neatly summed up one of the key problems: “Even under pressure, Italian political institutions, incumbent monopolies, public sector workers and public and private sector unions impede the government’s ability to respond decisively to challenging economic conditions,” S&P said. The U.S. was downgraded last month, in part because of divisions in Washington.

The end result is that investors, businesses and consumers are taking an extremely circumspect view of the fixes presented by policy makers. Those doubts could cause more problems down the line.

“Businesses and consumers could talk themselves into another recession,” said Frank Badillo, senior economist at Kantar Retail. “It’s really the difference between perception and reality, and right now there’s a huge disconnect.”

Badillo pointed to the tax credit for first-time homeowners that expired last year, but helped the housing market for a time and boosted spending. “Many of these initiatives, both fiscal and monetary initiatives have had an impact,” he said.

But the economy’s also had to fight off higher fuel prices with turmoil in the Middle East, a tsunami and nuclear fallout in Japan and the European debt crisis.

“The economy’s very vulnerable and it doesn’t have much of a capacity to absorb new shocks,” Badillo said. “That’s what makes the coming months very critical and the retail environment in particular vulnerable to flat if not declining growth.”

Given the broader weakness, investors took the Fed’s plan to push down interest rates as little more than a Band-Aid.

“The market is very realistic, it’s looking at the monetary fix and saying, ‘This is not much,’” said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. “We’re definitely bouncing along the bottom and the European situation is now the wild card — how bad will it get? The other danger is the emerging markets are beginning to slow. [The U.S.] had one growth engine and that was the exports.”

Even though retail sales have held up relatively well so far, especially on the high end, these broader economic concerns have caused many to rethink the holiday season and gird for slower growth than initially projected. Recent predictions have been that holiday hiring will be flat or slightly down compared with holiday 2010 as retailers keep tight control over expenses, while sales forecasts have been for sales to rise by around 3 percent, although foot traffic is expected to be down because more consumers might shop on the Internet given high gas prices.

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