Investors abandoned the retail sector early Tuesday as Wall Street reeled during a volatile session, only to come running back just as the price of oil began its biggest retreat in nearly two decades.
Although retailers gave back some of what they had made up later in the day, the Standard & Poor’s Retail Index closed the roller-coaster session down 0.7 percent after sinking as low as 313.63, a 3.8 percent sell-off.
Stocks finished mostly down, but substantially up from their pre-noon low points. Government reports of weaker-than-expected retail sales and higher-than-expected wholesale inflation also contributed to the gloomy tone that stretched from Capitol Hill to lower Manhattan and beyond.
The price of oil once again proved itself a dominant market force. Fears that a weak U.S. economy is cutting into demand for the commodity pushed its closing price down to $138.74 a barrel, down $6.44, but at one point during the trading day it fell more than $10, its biggest drop in 17 years.
The Dow Jones Industrial Average, Standard & Poor’s 500 and S&P Retail Index all hit new 52-week lows following the start of the session. The Dow Jones Industrial Average plummeted 200 points in early trading before closing the day down 92.65 points, or 0.8 percent, at 10,962.54. The S&P 500 fell 13.39 points, or 1.1 percent, to 1,214.91.
The trading day commenced on a sour note as Federal Reserve chairman Ben S. Bernanke painted a bleak picture for the U.S. economy in coming months, all but saying the country is in the midst of a recession. In his semiannual monetary policy report to the Senate Banking Committee, Bernanke cited increasing energy prices, tighter credit conditions and a still-deeper contraction in the housing markets as threats to growth. At the same time, the chairman said, inflation indicators have moved higher.
“I think we’re in a recession and I think we’ll be there until near the end of the year,” said Maury Harris, chief economist at UBS. “Call it what you want, it’s an undesirable situation in which to do business.”
Harris pointed to troubles in the banking industry, housing sector and energy prices as the causes of vulnerability and said that these problems will correct themselves, but it will take time.
President Bush attempted to ease concerns at a midmorning White House press conference.
“I’m an optimist,” the President said. “I believe there’s a lot of positive things for our economy, but…it’s not growing the way it should.”
The President used the conference to urge Congress to pass legislation to aid the troubled mortgage companies Fannie Mae and Freddie Mac. Even so, shares in Fannie Mae sank 27.3 percent during the day, and Freddie Mac’s were off 26 percent. Bush also called for Congress to allow for domestic offshore oil drilling.
In comparison to recent trading sessions, retail shares were nearly stable, although they didn’t escape the markets vicissitudes altogether.
Saks Inc. jumped 5.2 percent to $10.13 and, following an analyst upgrade, Zumiez Inc. boomed 5.1 percent to $13.09. Charlotte Russe Holding Inc. gained 3.7 percent to $16.05. American Eagle Outfitters Inc. lifted 2.3 percent to $12.70 and Buckle Inc. rose 2.1 percent to $46.52.
One of the better performers of recent sessions, Stage Stores Inc., led the wounded, tanking 5 percent to $12.04. Bebe Stores Inc. declined 2.9 percent to $8.90. Caché Inc. dropped 2.8 percent to $10.47 and Urban Outfitters Inc. fell 2.5 percent to $28.82.
A trio of department stores rounded out the decliners, with Macy’s Inc. down 2.3 percent to $15.91 and Nordstrom Inc. down the same percentage to $26.72. J.C. Penney Co. Inc. tumbled 3.6 percent to $28.40.
Macy’s opened the session at $16.28 and fell 7.7 percent to $15.03 in the first hour of trading before beginning its rebound. Shares of the company fell sharply last Friday on concerns about its liquidity but rallied on Monday following publication of a letter from chief executive officer Terry Lundgren defending its fiscal health. A research note from Goldman Sachs Group also contributed to Monday’s improvement.
Among manufacturers, Columbia Sportswear Co. was up 5.9 percent, to $35.71, after disclosing plans for a Chicago retail unit, while NexCen Brands Inc. surrendered 10 percent to close at 45 cents. Iconix Brand Group Inc., reportedly interested in NexCen’s Bill Blass and Waverly brands, was off 5.9 percent to $10.46. VF Corp. was up 0.8 percent, to $70.28, in advance of strong second-quarter earnings, and Waranco Group Inc. gained 3.5 percent, to $39.37.
Other suppliers with strong gains included Coach Inc., up 3 percent to $26.15; Maidenform Brands Inc., up 3.3 percent to $13.78; Jones Apparel Group Inc., up 2.1 percent to $13.09, and Lululemon Athletica Inc., up 2.2 percent to $24.26.
Inflationary concerns continued to haunt the prices of U.S.-produced goods despite declines in apparel.
Prices for all goods increased a seasonally adjusted 1.8 percent in June after rising 1.4 percent in May and 0.2 percent in April. Economists said prices continued to be driven up by the surge in the price of energy, particularly gasoline. The June increase was higher than the consensus estimate of a 1.3 percent increase for the month.
Apparel has remained immune from the inflationary revival so far. Wholesale prices for domestically manufactured women’s and girls’ apparel fell for the second consecutive month, dropping 0.4 percent in June compared with May and falling 0.2 percent from a year earlier, the Labor Department said Tuesday in its Producer Price Index.
Prices for all apparel dropped 0.2 percent in June, but rose 0.6 percent from the previous year.
On the retail sales front, retail and food service providers eked out a seasonally adjusted increase of 0.1 percent in June, lower than initially expected, after rising a revised 0.8 percent in May. Sales were up 3 percent from June 2007. Brian Bethune, chief U.S. financial economist at Global Insight, emphasized that June’s retail sales results were distorted by increased gas prices.
Apparel merchants fared better. Boosted by tax rebate checks, retail sales at specialty stores increased 0.6 percent in June from the prior month, while department stores posted a 0.3 percent gain, the U.S. Commerce Department reported.
Compared with June 2007, specialty store sales grew 2.9 percent to $19.24 billion, but department stores lost 1.3 percent to $17.15 billion.
“There was a fairly clear continued trend toward consumers purchasing necessities rather than discretionary items,” said Scott Hoyt, senior director of consumer economics for Moody’s Economy.com. “That was offset a little bit by the continued impact of the tax rebates, which was an important support to both the apparel and the department store segments.”
Richard Yamarone, chief economist at Argus Research Corp., said, “If you give consumers a handful of money, as the government has, and invite them into your stores with extremely discounted merchandise, it’s bound to have an impact.”
The tax rebates did not stimulate all categories equally and the modest increases in most retail categories were not enough to allay fears about the economy, Bethune said.
“Clearly, the domestic economy is on the ropes, with weak employment market conditions, declining home and equity prices, and surging gasoline prices inducing the consumer to pull back on major big ticket purchases, opt for discounted items and choose more fuel-efficient vehicles with much lower average sticker prices,” he said.
Automobiles and home furnishings were among the categories that struggled in June. Economists agreed that positives in the June results should not be exaggerated.
“Absent a plunge in gas prices, future prospects are remarkably difficult, with neither Presidential candidate offering any vision that remotely addresses the scope or scale of the challenges ahead,” said Charles McMillion, president and chief economist at MBG Information Services.
On the inflation front, core prices, which exclude the volatile energy and food sectors, increased 0.2 percent for the month.
“Producer prices soar[ed] on higher energy prices, but core prices remain grounded,” said Kenneth Beauchemin, U.S. economist at Global Insight.
The PPI is not an indicator of broad apparel trends, since the vast majority of apparel sold in the U.S. is manufactured outside the country, but price fluctuations are still notable. The Consumer Price Index, which shows all retail apparel prices, will be released today. According to the PPI report, prices for women’s and girls’ dresses increased 0.1 percent for the month and advanced 0.9 percent compared to last year. Knit shirts and blouses prices were up 0.1 percent from May, but fell 0.9 percent from last year. Woven shirts and blouses increased 0.2 percent for the month and 1 percent for the year.
Jeans and slacks dropped 1.9 percent for the month and fell 1.7 percent from a year ago, and tailored jackets and vests increased 0.8 percent for the month and advanced 3.8 percent from the same period last year. June prices for suits and pantsuits were flat versus May and dropped 0.4 percent compared with last year.
Prices for textile mill products, mainly apparel fabrics, were flat in June compared with May and up 3.6 percent compared with June 2007. Textile product mill prices, primarily home furnishing and industrial fabrics, were also flat in a month-to-month comparison and advanced 1.5 percent from a year ago.
Prices for synthetic fibers fell 0.1 percent from May and increased 0.6 percent from last year. Yarns dropped 0.2 percent in the month and spiked 6.6 percent from last year. Greige fabric prices also declined 0.2 percent for the month, but advanced 1.8 percent from the previous year. Prices for finished fabrics were up in month-to-month and yearly comparisons, increasing 0.2 percent and 3.4 percent, respectively.