The arithmetic of consumer finances — weighed down by higher costs and lower incomes — added up to a much slower spending growth in August as well as a lower savings rate.
And retail stocks took the hit as investors girded for tougher times ahead. The S&P Retail Index fell 2.6 percent, or 13.39 points, to 492.91, making for a 7 percent drop during the third quarter. The day’s retail and fashion decliners included Ralph Lauren Corp., down 7.2 percent to $129.70; PVH Corp., 6.4 percent to $58.24; Tiffany & Co., 6 percent to $60.82; Saks Inc., 5.1 percent to $8.75; Urban Outfitters Inc., 4.3 percent to $22.31; Abercrombie & Fitch Co., 4.1 percent to $61.56, and Macy’s Inc., 3.5 percent to $26.32.
The Dow Jones Industrial Average fell below 11,000, dropping 2.2 percent, or 240.60 points, to 10,913.38.
The Commerce Department said August personal incomes fell 0.1 versus the prior month, when incomes rose 0.1 percent. Consumer spending growth, as read in personal consumption expenditures, slowed to 0.2 percent in August from 0.7 percent in July. And the savings rate fell to 4.5 percent in August from 4.7 percent in July.
“In order to cope with higher prices for most goods and services — especially food and gasoline — many households had no choice but to save less, spend more and get less,” said Chris Christopher, Jr., senior principal economist at IHS Global Insight.
“The American consumer is in a fragile state — high debt, low wage growth, poor employment prospects and increasing prices,” he said. “Looking ahead, many retailers will feel pressure to discount early and hard in order to get traffic through their doors this holiday season since they face very weak consumer demand.”
Although retail sales held up pretty well over the summer, executives across the industry have been keeping inventories lean to avoid a fallout similar to the 2008 holiday season. If they cut back too far, they risk losing market share if the economy and consumer perk up, but only time will tell which chains struck the right balance.
The wild card remains Europe, where leaders are working hard to keep the Euro zone together amid a severe sovereign debt crisis.
Frankfurt’s DAX fell 2.4 percent, followed by Paris’ CAC 40, which tumbled 1.5 percent. Italy’s FTSE MIB sank 1.4 percent, while the FTSE 100 closed down 1.3 percent.
The Euro zone was struggling on a variety of fronts Friday, with uncertainty over whether Greece would get its second tranche of bailout funds, and word from Eurostat that the region’s unemployment figure in August remained at 10 percent, unchanged from July.
Eurostat, the Euro zone’s official statistics bureau, also estimated that inflation would reach 3 percent in September, compared with 2.5 percent in August. Official figures are due on October 14.
Meanwhile, most major retail and luxury stocks plummeted, with the day’s biggest decliners including Hugo Boss, which sank 13.2 percent; Italian eyewear maker Safilo Group, which tumbled 16.1 percent; Ferragamo, which retreated 10.9 percent, and online retailer Yoox, which fell 9.6 percent.