WASHINGTON — The retail climate during July and August throughout the country continued to be cloudy, the Federal Reserve reported Wednesday.

"Overall, retailers are…expecting [fall] sales to be flat or slightly up from their 2001 levels," according to a Fed report, an anecdotal survey of business managers in the Fed’s 12 districts.

In the New York district, economic activity and apparel sales during the middle of summer were described as "sluggish." For example, "a leading wholesaler of women’s apparel reported that the business climate is increasingly difficult, with sales volume and merchandise costs holding steady, but declining prices hurting margins and forcing some staff reductions. This contact attributed this to weakening consumer demand for clothing and consolidation in the retail industry."

Retailers across the board in New York saw sales "on or below plan in August, though the second half of the month was said to be better than the first half," according to the report. In addition, "most retailers describe inventory levels as favorable and report somewhat less discounting than a year ago."

Many districts reported slow-to-weak back-to-school sales. With the exception of the Minneapolis district covering the upper Midwest, mall traffic around the country was down. Discount stores, with Chicago, Dallas and Boston districts singled out, "continued to register stronger sales than general merchandisers."

Nervousness among retailers aboutthe economy was apparent throughout the Fed’s national survey, called the Beige Book. In the Dallas district, while reporting most businesses expect a continued slow economic recovery, the Fed said, "many contacts expressed concern that the recovery is very fragile."

In the Philadelphia district, "slipping consumer confidence" was partly blamed for lackluster sales, resulting in some stores in the region "implementing more aggressive discounts than they had planned in an effort to spur sales." Philadelphia "retailers said the outlook was uncertain, but they expect some improvement, especially in apparel sales, once cooler weather takes hold," the Fed said.

The Cleveland district reported "optimism among retailers" had "dissipated with slowing sales." Meanwhile, the persistent wave of textile mill layoffs in North Carolina was cited by the Richmond, Va., district as affecting retail sales in the state. However, a large department store with locations covering much of the South "reported that their business had been up."One bright spot for apparel sales was the lower Midwest. The Kansas City district reported sales of "home furnishings and apparel were strongest" and "nearly all managers remained optimistic about sales in coming months and were preparing to increase stock levels for the fall season."

The dampened retail climate is occurring against a backdrop of a continued falloff in tourism in most parts of the country, with New York cited as an exception, where "tourism was fairly lively this past summer." Other drags on the economy cited by business officials were a tepid manufacturing sector, rising health and labor costs, weak commercial real estate markets and a dip in business lending, the Fed said.

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