By and  on June 6, 2011

Retail took a one-two punch last week — first from mixed May sales reports and then a disappointing reading on the job market — significantly clouding second-half prospects just three weeks after stocks in the sector hit an all-time high.

The S&P Retail Index retreated 1.4 percent, or 7.44 points, to 510.53 Friday, ending down 3.6 percent for the week and 7.5 percent below the high set May 13. The Dow Jones Industrial Average fell 0.8 percent, or 97.29 points, to 12,151.26, making for a 2.3 percent weekly decline.

Of the 168 stocks tracked by WWD, 141 fell last week, five ended flat and 22 rose.

Weakness in the job market has caused investors and economists to question the broader recovery. The U.S. added just 54,000 jobs last month, about a third of what’s needed to keep up with population growth. And retailers are being hit hard by the specter of cotton- and labor-related price increases and high gas and food prices.

“Investors just shot first and asked questions later,” said Christine Chen, an analyst at Needham & Co.

In general, luxury retailers and chains with sharp offerings and good execution have prospered while budget-minded firms and companies that are off their game have suffered.

“There’s going to be haves and there’s going to be have-nots,” Chen said. “I think the weak players are going to get weaker. There just really isn’t any room for error. Now the consumer’s extremely picky.”

And so retailers are minding expenses and, according to the Labor Department’s employment report Friday, keeping employment relatively steady month to month.

Specialty stores added 500 jobs to employ 1.42 million last month, while department stores cut 300 jobs from payrolls, lowering employment to 1.49 million. General merchandise stores, a category that includes discounters and department stores, reduced payrolls by 100 to employ 2.98 million.

“Retailers are playing it cautious,” said Scott Hoyt, senior director of consumer economics at Moody’s Analytics. “Department stores, outside of luxe, have not been doing particularly well and discounters have been laggards. They performed comparatively well through the recession, but higher gas prices have clearly been a factor that is not good for discounters.”

Hoyt said year-over-year employment growth has been “quite weak” for general merchandise stores, although apparel specialty stores have fared better.

Compared with a year earlier, specialty stores added 51,000 jobs, while general merchandise stores added just under 20,000 jobs and department stores added 10,500 jobs, Hoyt said.

“Consumers are definitely wary and price-sensitive and it is only intensified by higher gas prices, which are affecting retailers,” Hoyt said.

A gallon of regular averaged $3.79 Friday, $1.07 more than a year ago, according to AAA.

The overall unemployment rate edged up to 9.1 percent in May from 9 percent in April as more people entered the labor market looking for jobs, but were unable to find them.

“The loss of economic momentum probably reflects the cumulative impact of surging commodity costs, which have squeezed consumer spending power and raised business costs, leading employers to become more cautious in hiring,” said Nigel Gault, chief U.S. economist at IHS Global Insight.

U.S. mills making apparel fabric added 100 jobs to employ 122,000 in May. Payrolls at textile product mills, which make mostly home furnishing and industrial fabrics, fell 300 to 115,900. Employment at apparel producers rose 300 to 157,400, as a slight sign of resiliency after decades of decline.

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