Retailers are feeling the benefits of a slowly improving economy, but the effects aren’t yet filtering down to their customers.
Consumers’ misgivings about jobs and the overall economic environment sent The Conference Board’s Consumer Confidence Index down sharply this month even as three major retailers Tuesday reported results that were substantially better than those registered during the dismal final quarter of 2008. The disconnect between the earnings and confidence data dramatizes that, despite hints of optimism among stores and their suppliers, the nascent economic recovery continues to be hobbled by consumers who don’t yet feel upbeat enough to createsustained top-line growth.
That means there’s no let-up in the pressure on retailers to continue to manage their businesses, and their balance sheets, with unprecedented caution and thrift.
After three straight months of improvement, the Consumer Confidence Index this month dropped to 46, its lowest level since April, from 56.5 in January. The weight of the public’s anxiety about jobs and other missing elements of recovery was reinforced by a drop in the Present Situation Index to 19.4, the lowest mark in 27 years, from 25.2 last month. The forward-looking Expectations Index dropped more, but from a higher level, declining to 63.8 from 77.3 in January.
Wall Street reacted negatively to the weak figures. The S&P Retail Index dropped 1.87 points, or 0.5 percent, to 411.74, the Dow Jones Industrial Average finished with a 100.97 point, or 1 percent, fall to 10,282.41 and the S&P 500 and Nasdaq Composite were off 1.2 percent and 1.3 percent, respectively. (For more on stocks, see page 14.)
Lynn Franco, director of The Conference Board’s Consumer Research Center, noted “fewer consumers [were] anticipating an improvement in business conditions and the job market over the next six months. Consumers also remain extremely pessimistic about their income prospects. This combination of earnings and job anxieties is likely to continue to curb spending.”
Speaking in California, Janet Yellen, president of the San Francisco Reserve Bank, added to the angst with comments indicating that businesses, such as the retailers reporting on Tuesday, will continue to emphasize improvements in efficiency and productivity “for some time. If this is the case, the rate of job creation will be frustratingly low.”
Brian Bethune, IHS Global Insight’s chief U.S. financial economist, attributed the index’s decline to “a confluence of unusual factors,” including the renewed resurgence in financial volatility connected with sovereign debt issues in Europe, severe weather conditions on the East Coast and slow progress on a jobs bill from Washington.
These came “despite widespread evidence that the U.S. recovery is progressing at a very solid rate. The drop in confidence may take the wind out of the sails of consumer spending briefly, but we do not see it as a major game-changer in terms of the progress of the recovery,” he said.
UBS economist Maury Harris noted that recent reports from retailers “show no evidence of any sudden weakening in spending in February.…The Conference Board survey tends to reflect labor market conditions to a greater degree than other indexes, likely accounting for some of the weaker performance.”
Nonetheless, the weak consumer confidence figures only add to the evidence of lackluster demand at retail. The NPD Group Inc. reported Tuesday that U.S. apparel sales last year declined 5.2 percent to $188.53 billion, with women’s apparel off 4.9 percent to $104.05 billion and men’s down 5.8 percent to $51.06 billion. Declines were largest among upper-income consumers (20 percent) and teens (9 percent) while consumption among middle-income consumers, defined as those earning $25,000 to $75,000, remained unchanged.
And the string of major retailers reporting Tuesday may have registered profits, but the numbers came against extremely weak figures a year earlier. Sears Holdings Corp. said quarterly profits jumped 126.3 percent, while Target Corp.’s rose 53.7 percent and Macy’s Inc. returned to profitability after a year-ago loss.
Here, a breakdown of the retailers reporting Tuesday:
Macy’s swung to a fourth-quarter profit, earning $466 million, or $1.10 a diluted share, compared with a loss of $4.77 billion, or $11.33, in the year-ago quarter. Excluding one-time charges, the retailer earned $1.40 a diluted share in the quarter, beating guidance of between $1.35 and $1.37.
Fourth-quarter sales fell 1.1 percent, to $7.85 billion from $7.93 billion, and slipped 0.8 percent on a comparable-store basis, better than the 1 to 2 percent drop expected.
“The fourth quarter represented a clear-cut improvement in sales trends from earlier in the year, driven by success from My Macy’s, a 26.6 percent increase in online sales and a significant rebound at Bloomingdale’s,” said Terry Lundgren, chairman, president and chief executive of Macy’s Inc.
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