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WASHINGTON — The government’s tax rebate checks are giving some much-needed relief to retailers.
This story first appeared in the June 13, 2008 issue of WWD. Subscribe Today.
Retail sales at department stores increased 0.8 percent to $17.1 billion in May from the previous month, while specialty store sales gained 0.5 percent to $18.98 billion. Analysts said the gains in May were largely driven by the federal tax rebate checks distributed in late spring. By the end of the month, $50 billion in stimulus funds had been sent to consumers.
“Today’s sales report is a good example of why you can’t take forecasts of economic doom and gloom at face value,” said John Lonski, chief economist at Moody’s Investor Services.
Lonski said consumers were able to transcend the downward pull of slower job growth, fewer home sales, home price deflation and rising food prices.
“The May retail sales report has dramatically changed the landscape,” said Nigel Gault, chief U.S. economist at Global Insight. “An improvement in sales had been expected, since chain store sales had suggested that consumers had started to spend some of their stimulus payments. But not only was the May improvement better than expected, sales for both March and April were revised up very sharply.”
Rosalind Wells, chief economist at the National Retail Federation, said the tax rebates gave consumers “a nice shot in arm.”
“It’s evident consumers are feeling a bit more confident about their expenditures, especially with both April and May sales seeing positive increases in many sectors,” Wells said.
The good news about retailing moved Wall Street as the Standard & Poor’s Retail Index advanced 1.6 percent to 385.03 on a day that saw the Dow Jones Industrial Average climb 0.5 percent, to 12,141.58. Talbots Inc. was among the market’s fastest climbers, gaining $2.16, or 25.1 percent, to close at $10.78 one day after disclosing that its major shareholder, Aeon Co. Ltd., had provided it an additional $50 million credit line. The closing price was the highest for the company’s shares since April 15. The following day, shares tumbled 28.7 percent on news that Bank of America had canceled one letter of credit and HSBC had cut another by more than half.
Sales for all retail and food service providers grew a seasonally adjusted 1 percent in May compared with April, the Commerce Department reported Thursday. April sales rose 0.4 percent, revised from initial reports of a 0.2 percent decrease.
The May increases beat consensus expectations for the month. But all the news wasn’t rosy. Compared with a year ago, specialty store sales were down 0.1 percent in May, while department store sales tumbled 2.6 percent from last year.
According to surveys conducted by the NRF about how consumers planned to spend their tax rebate checks, discounters and grocery stores were the primary beneficiaries. General merchandise stores, including department stores, increased sales 1.2 percent in May from April and 5.1 percent compared with last year.
Rebate checks are expected to influence spending through August, but experts predict the impact will wane by the fourth quarter and the holiday selling season. Economic pressures are still dragging on consumer spending and confidence, and shouldn’t be underestimated, analysts cautioned.