Retail shares perked up 2.2 percent Tuesday as consumer confidence rebounded from all-time lows and the government announced $800 billion in new programs to revive lending.
This story first appeared in the November 26, 2008 issue of WWD. Subscribe Today.
The action by the Federal Reserve and the Treasury Department to finance loans for consumers and small businesses and keep home mortgage rates low came as President-elect Barack Obama fleshed out his financial team and explained how he would pay for additional stimulus for consumers.
Still, shoppers — along with retailers and investors — are a long way from recovery.
The Conference Board’s Consumer Confidence Index for November rose to 44.9 from 33.8 last month, when the index hit its lowest level since the research group began tracking shopper sentiment in 1967. Lower gas prices helped boost confidence.
“Consumers remain extremely pessimistic and the possibility that economic growth will improve in the first half of 2009 remains highly unlikely,” said Lynn Franco, director of The Conference Board Consumer Research Center.
The survey of 5,000 U.S. households found shoppers are feeling more upbeat about the future than the present. The Expectations Index jumped to 46.7 this month from 35.7 in October, and The Present Situation Index slid to 42.2 from 43.5. The survey is based on data collected through Nov. 18.
“The consumer has been sort of shocked — it’s like a deer with the headlights on them,” Fariborz Ghadar, director of the Center for Global Business Studies at Pennsylvania State University, said. “[Confidence] is going to continue to be down for some time.”
And that isn’t the economy’s only problem. Ghadar said the financial crisis could worsen again if people who owe more on their mortgages than their homes are worth decide to give up and let the bank take over the house.
“Once it becomes socially acceptable to walk away from your home, we could have another round of problems,” Ghadar said. “The financial crisis has been somewhat solved given today’s level of foreclosure, but if the foreclosures start going up, then God knows what’s going to happen.”
For their part, investors pushed retail shares up for the third straight trading session. Jumping ahead were The Talbots Inc., up 25.5 percent to $2.66 after signing two new financing deals; New York & Co. Inc., 15.6 percent to $1.11; Urban Outfitters Inc., 11.5 percent to $17.89, and Chico’s FAS Inc., up 9.8 percent to $2.58.
Liz Claiborne Inc.’s shares rose 2.2 percent to $2.37 even after Moody’s Investors Service lowered its rating on the firm’s senior unsecured notes to “Ba2” from “Baa3,” a move into noninvestment territory. The firm was assigned a corporate family rating of “Ba1.” The outlook on the ratings is negative.
After the market closed, Moody’s also downgraded Limited Brands’ senior unsecured notes to “Ba1” from “Baa3” and assigned the firm a “Ba1” corporate family rating. The outlook is stable.
The country’s balance sheet was also a hot topic Tuesday.
Obama named Peter Orszag as his director of the Office of Management & Budget on Tuesday as he sought to reassure the public, financial markets and Congress that he can practice fiscal restraint even as he crafts an economic stimulus package that some predict could cost the government $500 billion to $700 billion.
Orszag, director of the Congressional Budget Office, will process federal agency budget requests in his new role and will be instrumental in targeting spending cuts. Rob Nabors, staff director of the House Appropriations Committee, was named deputy director of the OMB.
Obama said he plans to balance the budget and chip away at the rising deficit, once his economic recovery package is enacted. The federal deficit hit a record $455 billion in fiscal 2008, which ended Sept.30, more than double the deficit in fiscal 2007.
“We’ve got to distinguish between an immediate and temporary infusion [of federal funds] that will be required to kick-start the economy and some of the structural spending that has been taking place in Washington that has created this huge mountain of debt,” Obama said.